    [House Hearing, 113 Congress]
    [From the U.S. Government Publishing Office]

                      THE LIFELINE FUND: MONEY WELL SPENT?

    =======================================================================

                                    HEARING

                                   BEFORE THE

                 SUBCOMMITTEE ON COMMUNICATIONS AND TECHNOLOGY

                                     OF THE

                        COMMITTEE ON ENERGY AND COMMERCE

                            HOUSE OF REPRESENTATIVES

                        ONE HUNDRED THIRTEENTH CONGRESS

                                 FIRST SESSION

                                   __________

                                 APRIL 25, 2013

                                   __________

                               Serial No. 113-36

          Printed for the use of the Committee on Energy and Commerce

                            energycommerce.house.gov

                      U.S. GOVERNMENT PRINTING OFFICE
    82-189                    WASHINGTON : 2014
    -----------------------------------------------------------------------
    For sale by the Superintendent of Documents, U.S. Government Printing
    Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC
    area (202) 512-1800 Fax: (202) 512-2104  Mail: Stop IDCC, Washington, DC
    20402-0001

                        COMMITTEE ON ENERGY AND COMMERCE

                              FRED UPTON, Michigan
                                     Chairman
    RALPH M. HALL, Texas                 HENRY A. WAXMAN, California
    JOE BARTON, Texas                      Ranking Member
      Chairman Emeritus                  JOHN D. DINGELL, Michigan
    ED WHITFIELD, Kentucky                 Chairman Emeritus
    JOHN SHIMKUS, Illinois               EDWARD J. MARKEY, Massachusetts
    JOSEPH R. PITTS, Pennsylvania        FRANK PALLONE, Jr., New Jersey
    GREG WALDEN, Oregon                  BOBBY L. RUSH, Illinois
    LEE TERRY, Nebraska                  ANNA G. ESHOO, California
    MIKE ROGERS, Michigan                ELIOT L. ENGEL, New York
    TIM MURPHY, Pennsylvania             GENE GREEN, Texas
    MICHAEL C. BURGESS, Texas            DIANA DeGETTE, Colorado
    MARSHA BLACKBURN, Tennessee          LOIS CAPPS, California
      Vice Chairman                      MICHAEL F. DOYLE, Pennsylvania
    PHIL GINGREY, Georgia                JANICE D. SCHAKOWSKY, Illinois
    STEVE SCALISE, Louisiana             JIM MATHESON, Utah
    ROBERT E. LATTA, Ohio                G.K. BUTTERFIELD, North Carolina
    CATHY McMORRIS RODGERS, Washington   JOHN BARROW, Georgia
    GREGG HARPER, Mississippi            DORIS O. MATSUI, California
    LEONARD LANCE, New Jersey            DONNA M. CHRISTENSEN, Virgin
    BILL CASSIDY, Louisiana                  Islands
    BRETT GUTHRIE, Kentucky              KATHY CASTOR, Florida
    PETE OLSON, Texas                    JOHN P. SARBANES, Maryland
    DAVID B. McKINLEY, West Virginia     JERRY McNERNEY, California
    CORY GARDNER, Colorado               BRUCE L. BRALEY, Iowa
    MIKE POMPEO, Kansas                  PETER WELCH, Vermont
    ADAM KINZINGER, Illinois             BEN RAY LUJAN, New Mexico
    H. MORGAN GRIFFITH, Virginia         PAUL TONKO, New York
    GUS M. BILIRAKIS, Florida
    BILL JOHNSON, Missouri
    BILLY LONG, Missouri
    RENEE L. ELLMERS, North Carolina
                 Subcommittee on Communications and Technology

                              GREG WALDEN, Oregon
                                     Chairman
    ROBERT E. LATTA, Ohio                ANNA G. ESHOO, California
      Vice Chairman                        Ranking Member
    JOHN SHIMKUS, Illinois               EDWARD J. MARKEY, Massachusetts
    LEE TERRY, Nebraska                  MICHAEL F. DOYLE, Pennsylvania
    MIKE ROGERS, Michigan                DORIS O. MATSUI, California
    MARSHA BLACKBURN, Tennessee          BRUCE L. BRALEY, Iowa
    STEVE SCALISE, Louisiana             PETER WELCH, Vermont
    LEONARD LANCE, New Jersey            BEN RAY LUJAN, New Mexico
    BRETT GUTHRIE, Kentucky              JOHN D. DINGELL, Michigan
    CORY GARDNER, Colorado               FRANK PALLONE, Jr., New Jersey
    MIKE POMPEO, Kansas                  BOBBY L. RUSH, Illinois
    ADAM KINZINGER, Illinois             DIANA DeGETTE, Colorado
    BILLY LONG, Missouri                 JIM MATHESON, Utah
    RENEE L. ELLMERS, North Carolina     G.K. BUTTERFIELD, North Carolina
    JOE BARTON, Texas                    HENRY A. WAXMAN, California, ex
    FRED UPTON, Michigan, ex officio         officio

                                 C O N T E N T S

                                  ----------
                                                                       Page
    Hon. Greg Walden, a Representative in Congress from the State of
      Oregon, opening statement......................................     1
        Prepared statement...........................................     3
    Hon. Marsha Blackburn, a Representative in Congress from the
      State of Tennessee, opening statement..........................     6
    Hon. Henry A. Waxman, a Representative in Congress from the State
      of California, opening statement...............................     7
    Hon. Leonard Lance, a Representative in Congress from the State
      of New Jersey, prepared statement..............................   132

                                   Witnesses

    Julie Veach, Chief, Wireline Competition Bureau, Federal
      Communications Commission......................................     9
        Prepared statement...........................................    11
        Answers to submitted questions...............................   277
    Phillip B. Jones, Chairman of the Board and President, National
      Association of Regulatory Utility Commissioners................    19
        Prepared statement...........................................    21
        Answers to submitted questions...............................   285
    Jessica Gonzalez, Vice President of Policy and Legal Affairs,
      National Hispanic Media Coalition..............................    40
        Prepared statement...........................................    42
        Answers to submitted questions...............................   291
    Geoff Feiss, General Manager, Montana Telecommunications
      Association....................................................    58
        Prepared statement...........................................    60
        Answers to submitted questions...............................   294
    Christopher Guttman-McCabe, Vice President, Regulatory Affairs,
      CTIA--The Wireless Association.................................    73
        Prepared statement...........................................    75
        Answers to submitted questions...............................   298
    Billy Jack Gregg, Billy Jack Gregg Universal Consulting..........    85
        Prepared statement...........................................    87
        Answers to submitted questions...............................   300

                               Submitted Material

    Letters of support, submitted by Ms. Eshoo.......................   133
    Letters of support, submitted by Mr. Rush........................   267
    Chart entitled ``2012 Top Ten High Cost Disbursements by State,''
      submitted by Ms. Eshoo.........................................   276

                      THE LIFELINE FUND: MONEY WELL SPENT?

                                  ----------

                            THURSDAY, APRIL 25, 2013

                      House of Representatives,
         Subcommittee on Communications and Technology,
                              Committee on Energy and Commerce,
                                                        Washington, DC.
        The subcommittee met, pursuant to call, at 10:33 a.m., in
    room 2123 of the Rayburn House Office Building, Hon. Greg
    Walden (chairman of the subcommittee) presiding.
        Members present: Representatives Walden, Latta, Shimkus,
    Terry, Blackburn, Scalise, Lance, Guthrie, Gardner, Kinzinger,
    Long, Ellmers, Eshoo, Matsui, Braley, Welch, Lujan, Rush, and
    Waxman (ex officio).
        Staff present: Gary Andres, Staff Director; Ray Baum,
    Senior Policy Advisor/Director of Coalitions; Sean Bonyun,
    Communications Director; Matt Bravo, Professional Staff Member;
    Andy Duberstein, Deputy Press Secretary; Neil Fried, Chief
    Counsel, Communications and Technology; Debbee Hancock, Press
    Secretary; David Redl, Counsel, Telecom; Charlotte Savercool,
    Executive Assistant, Legislative Clerk; Dan Tyrrell, Counsel,
    Oversight; Lyn Walker, Coordinator, Admin/Human Resources; Phil
    Barnett, Democratic Staff Director; Shawn Chang, Democratic
    Senior Counsel; Patrick Donovan, Democratic FCC Detailee;
    Margaret McCarthy, Democratic Professional Staff Member; Roger
    Sherman, Democratic Chief Counsel; and Kara van Stralen,
    Democratic Special Assistant.

      OPENING STATEMENT OF HON. GREG WALDEN, A REPRESENTATIVE IN
                   CONGRESS FROM THE STATE OF OREGON

        Mr. Walden. I call to order the Subcommittee on
    Communications and Technology, and welcome our witnesses here
    today. We appreciate the work that you have put into your
    testimony and the thoughtfulness behind it, and we look forward
    to hearing from you.
        When the government spends other people's money, it has an
    ongoing obligation to ask a fundamental question: has it spent
    that money wisely? After all, the people whose money it is
    spending might have preferred to do something different with
    it, especially in these tight economic times. And if the answer
    to the fundamental question of whether the money is being well
    spent is ``no,'' then the government must ask a second
    question: how should it fix the situation?
        Last year, the FCC spent $2.2 billion of other people's
    money on the Lifeline program. Specifically, it spent $2.2
    billion of your money, my money, virtually every American's
    money, since the Lifeline program and the entire Universal
    Service Fund is paid for through a charge on phone bills.
    Carriers provide discounted service and collect the difference
    from the program. Some give away phones to gain the subscribers
    and the recurring revenue. But at the end of the day, it is
    still the same taxpaying people who bear the cost, since 96
    percent of the country has phone service and see a fee on their
    bill.
        The fund has increased 266 percent since 2008, and grown
    almost six-fold since 1998, all while the cost of phone service
    has actually gone down. Despite the limit of one subsidized
    subscriber per household, published reports suggest some
    subscribers have eight or more phones with subsidized service,
    with one woman saying that to get one ``she just goes across
    the street and gets it.'' One man has claimed to have a bag
    full of 20 phones on the program that he sells ``for about 10,
    15, 20 bucks'' each. Our hearing today is to determine what can
    be done to curb these kinds of potential abuses.
        And it is not clear the money is even really helping low-
    income families. According to some reports, as many as 41
    percent of those receiving Lifeline support either could not
    demonstrate eligibility for the subsidy or refused to respond
    to requests for certification. Moreover, 92 percent of low-
    income households have phone service but only about 58 percent
    of those households participate in the program, so many low-
    income homes apparently obtain phone service without the
    subsidy. And despite spending $7 billion on the program over
    the last 5 years, the phone penetration rate among low-income
    households has only grown 2 percent, with only some of that
    growth likely attributable to the Lifeline program since at
    least \1/3\ of low-income phone households don't use the
    subsidy.
        There may be a number of ways to interpret these data and
    other data, but it certainly does not paint a picture of
    success. So as far as that first fundamental question goes,
    there is near unanimity among the FCC, both parties of
    Congress, and almost anyone familiar with the program that the
    Lifeline fund has been fraught with waste, fraud, and abuse and
    that the money has not been spent as wisely as it should have
    been.
        Now there is more than enough blame to go around. The path
    we have found ourselves on was paved by many people, presumably
    with the best intentions. But it does not change the fact that
    we are spending large sums of money and probably squandering
    much of it. Which brings us to the second question, which is
    how to fix the situation.
        Now, Senators McCaskill and Coburn say eliminate the
    program. Indeed, as recently as last month, Senator McCaskill
    concluded, and I quote, that ``there is just no reason this
    program should continue, given its history of extensive waste
    and abuse.'' Senator Pryor and Congressman Griffin say exclude
    wireless providers from the program. Congresswoman Matsui,
    Ranking Members Waxman and Eshoo, and a number of their
    colleagues say expand it to broadband. Whatever we do, staying
    on the present course seems out of the question.
        To the FCC's credit, the agency has embarked on a number of
    reforms since 2011. For example, to ensure only eligible
    households participate and to combat duplicative subsidies to a
    single household or even a single user, the FCC is moving
    forward with beefed up certification processes and creation of
    eligibility and duplication databases. It has also imposed
    independent audit requirements on carriers receiving more than
    $5 million a year in Lifeline funding. The FCC says its efforts
    will save $2 billion over the next 3 years, but are the steps
    the Commission is taking enough? With only a 58 percent
    penetration rate, the fund may still continue to grow,
    especially if it is expanded to cover broadband.
        Should the program be eliminated? If not, should a freeze
    be put in place until reforms are complete? Should the program
    be placed under a cap or budget? I note that the 2012 FCC
    reform order suggested the agency would establish a budget by
    early 2013, but disappointingly, I see no mention of such a
    budget in today's FCC testimony. Should subscriber co-payments
    be required? Should the program be moved to a voucher system so
    the subsidy goes directly to the user rather than through a
    carrier? Should the FCC consider the waivers allowing
    participation by non-facilities based carriers? These are among
    a host of questions that many in industry, in the press, in
    Congress and in the public are asking and they are among the
    many issues that we hope to examine with today's hearing.
        So I thank the witnesses for being here. Your testimony and
    expertise are welcome and we look forward to your ideas about
    this program gone awry.
        [The prepared statement of Mr. Walden follows:]

                     Prepared statement of Hon. Greg Walden

        When the government spends other people's money, it has an
    ongoing obligation to ask a fundamental question: has it spent
    that money wisely? After all, the people whose money it is
    spending might have preferred to do something different with
    it, especially in these tight economic times. And if the answer
    to the fundamental question of whether the money is being well
    spent is ``no,'' the government must ask a second question: how
    should it fix the situation?
        Last year, the FCC spent $2.2 billion of other people's
    money on the Lifeline program. Specifically, it spent $2.2
    billion of your money, my money-virtually every American's
    money-since the Lifeline program and the entire Universal
    Service Fund is paid for through a charge on phone bills.
    Carriers provide discounted service and collect the difference
    from the program. Some give away phones to gain the subscribers
    and the recurring revenue. But at the end of the day, it is
    still the same taxpaying people who bear the cost, since 96
    percent of the country has phone service and see a fee on their
    bill.
        The fund has increased 266 percent since 2008 and grown
    almost six-fold since 1998, all while the cost of phone service
    has gone down. Despite the limit of one subsidized subscriber
    per household, published reports suggest some subscribers have
    eight or more phones with subsidized service, with one woman
    saying that to get one ``she just goes across the street and
    gets it.'' One man has claimed to have a bag full of 20 phones
    on the program that he sells ``for about 10, 15, 20 bucks''
    each. Our hearing today is to determine what can be done to
    curb these kinds of potential abuses.
        And it's not clear the money is even really helping low-
    income families. According to some reports, as many as 41
    percent of those receiving Lifeline support either could not
    demonstrate eligibility for the subsidy or refused to respond
    to requests for certification. Moreover, 92 percent of low-
    income households have phone service but only about 58 percent
    of those households participate in the program, so many low-
    income homes apparently obtain phone service without the
    subsidy. And despite spending $7 billion on the program over
    the last five years, the phone penetration rate among low-
    income households has only grown two percent, with only some of
    that growth likely attributable to the Lifeline program since
    at least one-third of low-income phone households don't use the
    subsidy.
        There may be a number of ways to interpret these and other
    data, but it certainly does not paint a picture of success. So
    as far as that first fundamental question goes, there is near
    unanimity among the FCC, both parties of Congress, and almost
    anyone familiar with the program that the Lifeline fund has
    been fraught with waste, fraud, and abuse and that the money
    has not been spent as wisely as it should have been.
        There is more than enough blame to go around. The path we
    have found ourselves on was paved by many people, presumably
    with the best of intentions. But it does not change the fact
    that we are spending large sums of money and probably
    squandering much of it. Which brings us to the second question:
    how to fix the situation.
        Senators McCaskill and Coburn say eliminate the program.
    Indeed, as recently as last month Senator McCaskill concluded
    that ``there's just no reason this program should continue,
    given its history of extensive waste and abuse.'' Senator Pryor
    and Congressman Griffin say exclude wireless providers from the
    program. Congresswoman Matsui, Ranking Members Waxman and
    Eshoo, and a number of their colleagues say expand it to
    broadband. Whatever we do, staying on the present course seems
    out of the question.
        To the FCC's credit, the agency has embarked on a number of
    reforms since 2011. For example, to ensure only eligible
    households participate and to combat duplicative subsidies to a
    single household or even a single user, the FCC is moving
    forward with beefed up certification processes and creation of
    eligibility and duplication databases. It has also imposed
    independent audit requirements on carriers receiving more than
    $5 million a year in Lifeline funding. The FCC says its efforts
    will save $2 billion over the next three years, but are the
    steps the Commission is taking enough? With only a 58 percent
    penetration rate, the fund may still continue to grow,
    especially if it is expanded to cover broadband. Should the
    program be eliminated? If not, should a freeze be put in place
    until reforms are complete? Should the program be placed under
    a cap or budget? (I note that the 2012 FCC reform order
    suggested the agency would establish a budget by early 2013,
    but disappointingly I see no mention of such a budget in
    today's FCC testimony.) Should subscriber co-payments be
    required? Should the program be moved to a voucher system so
    the subsidy goes directly to the user rather than through a
    carrier? Should the FCC reconsider the waivers allowing
    participation by non-facilities based carriers? These are among
    the questions many in industry, in the press, in Congress and
    in the public are asking and they are among the issues we will
    examine today.
        I thank the witnesses for being here. Your testimony and
    expertise are welcome and we look forward to your ideas about
    this program gone awry.

                                    #  #  #

        Mr. Walden. With that, I yield back the balance of my time
    and recognize the gentlelady from California, Ms. Eshoo.
        Ms. Eshoo. Thank you, Mr. Chairman, for agreeing with our
    request, the Democrat's request, to hold this morning's hearing
    on the Universal Service Fund's low income program known as
    Lifeline.
        Started nearly 30 years ago under the Reagan
    Administration, the Lifeline program advances an important
    public policy goal of ensuring affordable monthly telephone
    service for tens of millions of low income Americans. The
    program, as you know, was expanded to include wireless service
    during the Bush Administration, and on our side, we have
    consistently not only pursued the efficacy of the program, but
    worked to weed out any problems with it, so we appreciate the
    fact that you would have this hearing this morning to examine
    it.
        Now while most of us take basic phone service for granted,
    for many Americans, including seniors, veterans, and the
    disabled who are unable to work or are temporarily unemployed,
    Lifeline support can be the only means for regularly staying in
    touch with a doctor, applying for a job, or contacting 911
    during an emergency. Oversight hearings will ensure the
    Lifeline program is achieving its intended goals and doing so
    without waste, fraud or abuse.
        Thanks to the reform measures implemented under FCC
    Chairman Genachowski, the Commission expects to save more than
    $2 billion through 2014. These savings have come through
    commonsense reform such as scrubbing subscriber roles of
    duplicates, requiring proof of eligibility, and de-enrolling
    subscribers who are not actually using service. As we look
    toward the future, the FCC and states must continue to take
    corrective action as soon as problems are identified. The
    timely implementation of a national database to ensure program
    eligibility and prevent duplication must be a top priority. I
    commend Congresswoman Matsui for her steadfast commitment to a
    21st century Lifeline program.
        In order to compete in today's economy, every American
    needs high speed access to the Internet, whether to apply for
    jobs or receive healthcare or education. We know this. This is
    a given fact. The Broadband Affordability Act introduced
    earlier this week creates a permanent program for Lifeline
    support for broadband, while directing the FCC to ensure
    accountability for carriers participating in the program.
        So I want to thank each of our witnesses for the important
    testimony that you will offer today, the important answers to
    the important questions that are going to be asked of you, and
    for your steadfast commitment to strengthen the Lifeline
    program.
        I now yield the balance of my time to Congresswoman Matsui
    of California.
        Ms. Matsui. Thank you, Ranking Member Eshoo, for yielding
    me time, and I would also like to welcome our witnesses here
    today.
        It is my hope that this hearing focuses on the facts about
    the Lifeline program, and not the fiction. Up until recently,
    Lifeline has enjoyed bipartisan support. Lifeline was created
    by President Reagan and expanded for wireless service by
    President Bush. Lifeline provides a benefit to many of
    America's disabled veterans, seniors, tribal areas, and
    families in Head Start and a school lunch program.
        In my district of Sacramento, nearly 30,000 of my
    constituents participate in Lifeline, 17,000 of whom are
    seniors on fixed income. The Lifeline program must be reformed
    and modernized in a responsible manner, and it must account for
    the Internet and innovation economy. Nearly 100 million
    Americans still have not adopted broadband, which is only more
    concerning given more than 80 percent of available jobs in this
    country now require online applications. To help address the
    digital divide, along with Ranking Members Waxman and Eshoo, I
    introduced a Broadband Adoption Act to allow eligible Americans
    in rural and urban areas to use Lifeline for broadband
    services. The bill also requires the FCC to implement a
    national eligibility database to ensure one Lifeline per
    eligible household. This will prevent the growth of a Lifeline
    fund in a responsible manner, while ensuring Lifeline is
    eligible for the millions of Americans who need it. We need to
    reform and modernize Lifeline, not eliminate it.
        I yield back the balance of my time.
        Mr. Walden. Gentlelady yields back the balance of her time.
        We now recognize the vice chair of the full committee, the
    gentlelady from Tennessee, Mrs. Blackburn.

    OPENING STATEMENT OF HON. MARSHA BLACKBURN, A REPRESENTATIVE IN
                  CONGRESS FROM THE STATE OF TENNESSEE

        Mrs. Blackburn. Thank you, Mr. Chairman, and I want to
    welcome all of our witnesses. We are pleased that you are here,
    because this is a program that we are hearing quite a bit
    about, the Lifeline program.
        You know, it was started with good intentions, and bear in
    mind, now it is a $2.2 billion expense. It started in 1984, and
    it wasn't even a $380 million program until 1998. So this is
    the kind of explosive growth that this program has seen, and it
    is why so many of our constituents are questioning the program
    and are questioning the use of Obama phones, as they are
    commonly called. And I think that what it has come to be is
    more or less a symbol of the mismanagement, not only within
    this program, but with the entire USF and the FCC's budget.
        So there are plenty of questions that are springing up
    around this. What you are going go hear us focus us on is
    accountability. You know, this is an Administration that said
    we want to be transparent. We want to be accountable. We want
    to be the best at that. And we are repeatedly shown
    mismanagement and lack of transparency, and a shuttling, if you
    will, of accountabilities, and so we do look forward to
    reviewing this. Should it be reauthorized? Should it be wound
    down? Should it be eliminated? How do we hold it accountable?
    What reforms should go into place if it is allowed to stay? I
    think if it were up for sunset today, that many in this
    Congress would view and vote to take it down because of the
    mismanagement that is there.
        I think that also the qualifications for individuals that
    are enrolled in the program, making certain that there is
    vetting and verification done for the individuals that are
    enrolled in that program.
        Also questions that you get are the ones that are receiving
    the phones, are they obligated to use those phones on the
    networks, the carriers from whom they have received the phone,
    or can they unlock their subsidized phone and go onto their own
    private networks? I even had one constituent, after it came out
    that the bombing--the terrorist that committed the bombings in
    Boston were receiving welfare benefits, were they in this
    program? I think those are the kinds of questions that our
    constituents are asking, and we turn to you to be able to get
    those answers and to look for the way to reform and to hold
    this program accountable.
        I thank you so much for your time, and Mr. Chairman, I
    yield back.
        Mr. Walden. The gentlelady yields back.
        I now recognize the vice chair of the subcommittee, Mr.
    Latta, for the remaining time.
        Mr. Latta. I thank the chairman for yielding the time, and
    I also appreciate you holding this hearing today, and I thank
    our distinguished panel of witnesses for testifying today.
        Unfortunately, waste, fraud, and abuse are words too often
    associated with government programs. While the Universal
    Service Fund Lifeline program serves an important purpose in
    connecting low income Americans, the tripling of the program
    from 2009 to 2012, and the all the too frequent stories of
    abuse of the program are cause for concern. I do commend the
    FCC for the reforms adopted in 2012; however, I have concerns
    that the program is still on an unsustainable path.
        I look forward to hearing more about the implementation of
    the Commission's reforms, and if additional actions need to be
    taken. Since all Americans invest in the program through a
    surcharge on their phone bill or through participation in
    Lifeline, our discussion here today is significant, not just
    for this subcommittee, but for all Americans across the
    country.
        I thank the chairman, and I yield back.
        Mr. Walden. Gentleman yields back.
        Anyone else on the Republican side want the remaining 56
    seconds? If not, all time is yielded back on our side.
        We will turn now to the ranking member of the full
    committee, Mr. Waxman, for 5 minutes.

    OPENING STATEMENT OF HON. HENRY A. WAXMAN, A REPRESENTATIVE IN
                 CONGRESS FROM THE STATE OF CALIFORNIA

        Mr. Waxman. Thank you, Mr. Chairman.
        Last month, I joined with my colleagues Representatives
    Eshoo and DeGette to call for a hearing on Lifeline. We asked
    for a hearing because we believe bipartisan oversight can
    strengthen this important program, and I thank Chairman Walden
    for agreeing to hold this hearing.
        We have a national commitment to ensure every American has
    access to the communications services they need to fully
    participate in our economy and democracy. The $8 billion spent
    annually by the FCC's Universal Service Fund is supposed to
    advance that goal, but because USF is ultimately paid for by
    consumers, we must demand accountability to ensure the funds
    are spent responsibly.
        Since its beginning during the Reagan Administration,
    Lifeline has helped millions of Americans living in poverty get
    home phone service. Without this assistance, these families
    would not be able to call for help in emergencies or
    participate in our economy. In advance of today's hearing, we
    heard from victims of domestic violence, homeless veterans, and
    families caring for children with disabilities that this
    relatively small subsidy has a big impact in keeping them
    connected.
        Regrettably, some have made up myths about the program to
    score political points. Here are the facts. President Obama did
    not create Lifeline. The government does not give away free
    cell phones or iPads. Nowhere in America, except in Tennessee,
    do they call it an ``Obama Phone.'' Eliminating the Lifeline
    program or disqualifying wireless services would not reduce our
    Nation's budget deficit by a single penny.
        Under Chairman Genachowski, the FCC has improved efficiency
    and curbed incentives for waste, fraud, and abuse across all
    four USF programs. For Lifeline, the FCC has instituted tough
    measures that require consumers to demonstrate that they are
    eligible for benefits before they can sign up. As a result of
    these reforms, the size of the Lifeline program is declining.
    That progress must continue, and the Commission should remain
    open to additional proposals that could enhance accountability.
        We should also continue to modernize the program to meet
    the 21st century communications needs of low income Americans.
    That is why I am proud to be an original cosponsor of the
    Broadband Adoption Act introduced by Representative Matsui. The
    bill would allow eligible low income households to apply the
    Lifeline support towards broadband services. It also directs
    the FCC to prevent waste, fraud, and abuse and does not add a
    single new household to the program.
        But our oversight shouldn't just stop with Lifeline. Since
    1998, the High Cost Fund has distributed over $51 billion to
    rural telecom carriers--nearly four times as much as the low
    income program. I believe strongly that Americans in rural
    areas of our Nation need access to communication services just
    as much as my constituents in LA, but there are certainly
    equal, if not greater, incentives for waste, fraud, and abuse
    in the High Cost Fund.
        Under Lifeline, the phone companies get $9.25 per month of
    Lifeline support per household, but until recently, the High
    Cost Fund paid some carriers thousands of dollars per month per
    household. Although the FCC has taken positive steps to reduce
    these enormous High Cost Fund subsidies, many phone companies
    still receive hundreds of dollars per month per household, and
    unlike the Lifeline program, one high cost household can have
    multiple subsidized lines. A low income family of five in Los
    Angeles is allowed one Lifeline phone to share as an economic
    unit. In contrast, a high cost household in Arkansas is
    eligible to have multiple subsidized lines going to one
    address. The low income family is eligible for a discount of $9
    per month, while the household in Arkansas is eligible for
    subsidies up to $250 per line, with no limit on the number of
    subsidized lines. And the Arkansas subsidy is available
    regardless of household wealth.
        Now I am not opposed to oversight of the Lifeline program.
    In fact, I was one of the members who requested this hearing.
    But I am opposed to those who want to turn this into a partisan
    issue or to pick on subsidies to low income families while
    ignoring the even larger subsidies their constituents receive.
        Thank you, Mr. Chairman. I look forward to hearing from our
    witnesses.
        Mr. Walden. Gentleman's time is expired.
        We will now go to--hear from our witnesses, and first up is
    Julie Veach, who is the Chief of the Wireline Competition
    Bureau, Federal Communications Commission. Ms. Veach, we are
    delighted to have you here. Please pull that microphone pretty
    close to you, uncomfortably close, turn the button on, and you
    are set to go.

    STATEMENTS OF JULIE VEACH, CHIEF, WIRELINE COMPETITION BUREAU,
     FEDERAL COMMUNICATIONS COMMISSION; PHILLIP B. JONES, CHAIRMAN
    OF THE BOARD AND PRESIDENT, NATIONAL ASSOCIATION OF REGULATORY
      UTILITY COMMISSIONERS; JESSICA GONZALEZ, VICE PRESIDENT OF
     POLICY AND LEGAL AFFAIRS, NATIONAL HISPANIC MEDIA COALITION;
       GEOFF FEISS, GENERAL MANAGER, MONTANA TELECOMMUNICATIONS
       ASSOCIATION; CHRISTOPHER GUTTMAN-MCCABE, VICE PRESIDENT,
     REGULATORY AFFAIRS, CTIA--THE WIRELESS ASSOCIATION; AND BILLY
           JACK GREGG, BILLY JACK GREGG UNIVERSAL CONSULTING

                        STATEMENT OF JULIE VEACH

        Ms. Veach. Good morning, Chairman Walden, Ranking Member
    Eshoo, and members of the subcommittee, and thank you for the
    opportunity to address the FCC's reforms to the Lifeline
    program.
        For more than 25 years, the Lifeline program has helped
    ensure that the neediest among us have access to basic
    telephone service, a gateway to finding a job, accessing
    healthcare, connecting with family, and calling for help in an
    emergency. The program was originally designed for old-
    fashioned wireline phone service. In the 2000s, as consumers
    increasingly adopted wireless services, the program adapted to
    support wireless service for low income families, but adequate
    protections were not put in place and the Lifeline program
    became a target for waste and abuse.
        Seeing the facts, in 2009 the Commission started
    overhauling the program to root out waste, fraud, and abuse,
    and to modernize it to meet the communications needs of low
    income Americans. Building on recommendations from the Joint
    Board on Universal Service, in 2011 the FCC initiated
    comprehensive Lifeline reforms. The reforms are expected to
    produce $2 billion in savings through the end of 2014. In
    addition, for the first time, the Commission adopted clear
    goals for the program: ensuring the availability of voice and
    broadband services for low income Americans, and minimizing the
    burden on consumers and businesses who pay for it.
        Let me walk you through the major reforms. First, the
    Commission took steps to ensure that only one eligible consumer
    per household participates in the program. Our rules now
    require that low income consumers prove eligibility at the time
    of enrollment. We are working closely with states and other
    federal agencies to automate this process. The FCC also put in
    place an annual recertification requirement to ensure that only
    eligible subscribers remain in the program. This reform alone
    is projected to save $400 million in 2013. We have also been
    working since 2010 to eliminate duplicative Lifeline support.
    Through targeted data reviews, we have eliminated 1.5 million
    duplicate subscriptions, saving $180 million a year. In
    addition, the National Lifeline Accountability Database, which
    will be operational by the end of the year, will permanently
    detect and prevent duplicative support.
        The FCC took several other steps. We eliminated Link Up
    support to providers offering service on non-Tribal lands,
    support originally intended to defray the cost of dispatching a
    technician. This reform resulted in savings of over $93 million
    last year. The FCC also adopted new oversight and auditing
    requirements, and we are actively enforcing our rules.
    Recently, the FCC's Endorsement Bureau pursued cases against
    two providers that resulted in an enforcement action over $1
    million, and issued nearly 200 warnings to individuals
    notifying them that they violated the program rules.
        Finally, using savings from the reforms, we launched a
    broadband pilot that will provide critical data as the
    Commission considers how best to ensure that low income
    Americans have access to broadband, which is becoming essential
    to access jobs, education, and economic opportunity.
        Before closing, I would like to emphasize the critical role
    of our state partners. Under the Communications Act, states
    designate the providers to participate in the Lifeline program,
    including in most cases wireless providers. In addition, states
    can operate as laboratories for reform by adopting rules and
    safeguards that go beyond the FCC's baseline, and by using
    their own systems to detect and eliminate duplicative support.
        In closing, I wish to emphasize that access to phone
    service increases access to jobs, medical care, and social
    services, things that can lift consumers out of poverty. We
    look forward to continuing to work with you, our state
    partners, other federal agencies, industry, consumer groups,
    and the low income community to ensure that our program is
    disciplined and effective. Thank you.
        [The prepared statement of Ms. Veach follows:]

        [GRAPHIC] [TIFF OMITTED]

        Mr. Walden. Thank you, Ms. Veach. We appreciate your
    testimony and the work at the FCC.
        We will now go to Mr. Phillip Jones, Chairman of the Board
    and President of the National Association of Regulatory Utility
    Commissioners. We appreciate not only your testimony, but the
    response to our letter as well where we had sought your input
    and that of your members across the country, so Mr. Jones, I
    thank you and please go ahead.

                     STATEMENT OF PHILLIP B. JONES

        Mr. Jones. Thank you, Chairman Walden. Good morning,
    members of the committee, Ranking Member Eshoo. I am pleased to
    testify today on the federal Lifeline program.
        I am a Commissioner of the Washington State Utilities and
    Transportation Commission, and also as the chairman noted,
    President of NARUC. We are a group that represents public
    utility commissions around the country, 50, plus the District
    of Columbia, plus certain territories. Over 200 commissioners
    and 8,000 staff are regulating, hopefully with humility, in the
    public interest, and we take this responsibility, as Ms. Veach
    said, seriously. This is a valuable program. It has been
    operated under a federalist construct for 3 decades. It is
    bipartisan, but we recognize the need for more accountability
    today. And as we said in our letter to you last Friday,
    Chairman Walden, we tried to answer your questions on
    accountability, and we did a survey. We got 30 responses.
        Just let me say a few things about background on this. When
    this program was created in 1985 after the breakup of AT&T, the
    program applied only to landline service and the opportunity
    for abuse was limited under the old AT&T system. There was
    little competition in the marketplace. Wireless was not
    available. Cable VoIP was not available. But in 2005, the FCC
    broadened the program by making discounts available, as Ms.
    Veach noted, to non-facilities based carriers. These are
    resellers of equipment and networks offered by the wireline
    folks. These new entrants, led by a company called TracFone,
    developed business plans, for profit business plans, providing
    not only low income consumers with free cell phones and free
    minutes, but generating healthy profits. Nothing wrong with
    that. It was just new. Such plans were not possible or even
    heard of in 1985 or 1996. What happened? Explosive growth.
    Explosive growth in the low income fund.
        In November of 2009, NARUC called for improved verification
    practices to overhaul a system grounded in self-certification.
    This program is grounded in self-certification. Yes, under the
    penalty of perjury, but it is basically self-certification.
    Many NARUC members had issues with that, Mr. Chairman, right
    from the start, me included, but the FCC chose not to deal with
    it then and we have kind of the problem that we have today.
        As the FCC, however, continues to work on databases to
    eliminate duplicate support and verify eligibility, some states
    moved ahead. Ranking Member Eshoo and Congresswoman Matsui,
    your State of California has been a leader in this regard. 2006
    they started a new program on verification. You may disagree
    because 500,000 people were de-enrolled, but they really
    stepped up to the plate even before the FCC acted.
        So there are five states now that have opted out of the
    FCC's program. Vermont is included, Representative Welch, and
    California has opted out of this new order last year. And at
    least 11 states social service databases are being used to
    confirm consumer eligibility at the front end, including my
    State of Washington. More states are considering establishing
    such databases, but the cost can be prohibitive and the
    expectation of federal databases may cause some states to avoid
    the cost of creating their own.
        I was pleased when the FCC took action on Lifeline in 2010,
    and let me commend the FCC for referring this to the Joint
    Board. The Joint Board process with the states was set up to
    deal with difficult technical issues like this. I note at the
    time Ray Baum served as the Commissioner. He was very active on
    the Joint Board, and I think Ray would agree with me that the
    Joint Board process for Lifeline worked well. Referred to the
    Joint Board, came back with a recommended decision within 6
    months, record time, and then the FCC--as Julie said, the FCC
    acted on it. This is a textbook example of how the
    congressionally mandated Joint Board process should work.
        We have some results in the State of Washington. I won't
    dwell on those now. I can respond in questions, but about 35,
    37 percent with one carrier, 25 percent with another. They
    either didn't respond or they were de-enrolled last year. So
    this certification and recertification process does work.
        I have some questions about why people don't respond. I
    think there are some legitimate concerns about why these people
    don't respond. Maybe a homeless person without an address. It
    may not be addressed to the proper person. The carrier may not
    have the resources to follow up. And I think legitimate people
    who qualify at 135 percent of the federal poverty guidelines
    should get this service.
        So in closing, I think it is a valuable program. I commend
    Julie and the FCC staff. They worked hard on this. As I said,
    this is a shared responsibility--states, FCC, carriers, low
    income groups. So I look forward to the questions and answers.
    Thank you.
        [The prepared statement of Mr. Jones follows:]

        [GRAPHIC] [TIFF OMITTED]

        Mr. Walden. Thank you, Mr. Jones. We appreciate, again, the
    work of your organization and you personally.
        We will now move to Ms. Jessica Gonzalez, who is the Vice
    President of Policy and Legal Affairs for the National Hispanic
    Media Coalition. Ms. Gonzalez, we are delighted to have you
    here today. Please go ahead with your testimony.

                     STATEMENT OF JESSICA GONZALEZ

        Ms. Gonzalez. Thank you. Thank you, Chairman Walden----
        Mr. Walden. Go ahead and push that little button there.
        Ms. Gonzalez. Thank you, Chairman Walden, Ranking Member
    Eshoo, members of the subcommittee. I am Jessica Gonzalez of
    the National Hispanic Media Coalition. We are an organization,
    a nonprofit organization that scrutinizes telecommunications
    policies through the lens of how they impact Latinos and other
    people of color.
        The question posed by today's hearing is whether the
    Lifeline program is money well spent. I answer with a
    resounding yes.
        Lifeline has an important goal to ensure that all people
    have access to affordable communications. It is a treasured
    tool that achieves broad societal goals, such as upward
    mobility. It positively and directly affects our economy,
    employment, healthcare, public safety, strong families, civic
    participation, and education.
        The idea that we as a country should remove barriers so
    that all people can access communications is not a new one. In
    fact, the concept dates back to the Postal Act of 1792.
    Lifeline's roots are in the Reagan FCC, which created Lifeline
    at the behest of a bipartisan group of Congressmen and
    Senators. In the Telecom Act of 1996, Congress further codified
    the concept by establishing the Universal Service Fund, stating
    that consumers in all regions of the Nation, including low
    income consumers and those in rural, insular, and high cost
    areas, should have access to telecommunications and information
    services. And in the aftermath of Hurricane Katrina, the Bush
    FCC used USF monies to support prepaid wireless service, and
    ensure that those displaced by the storm would stay connected.
        Lifeline now provides phone service to more than 15 million
    people. Who are these people? According to one provider, most
    of them have an annual household income of less than $15,000
    per year. Nearly \1/3\ are over the age of 55, and over \1/3\
    are disabled.
        Stories in the media of corporate abuse for profit have
    drowned out the voices of the very real people that use
    lifeline as a tool to improve their lives and move away from
    government assistance. I sit here before you this morning to
    tell their stories.
        The story of a disabled mother from Tennessee caring for a
    child with Down's Syndrome who said it gives me peace of mind
    to know that I can pick up the phone and call for help. The
    story of a veteran and double amputee who uses wireless
    Lifeline to coordinate doctor's appointments and communicate
    with family while away from home. A single father who was laid
    off, but secured a job in just a few months with his Lifeline.
    A pediatrician in Boston who treats fragile children living in
    shelters, in public housing, and on the streets. She can
    monitor those children because of wireless Lifeline service. A
    mental health therapist in Baltimore who explained that
    Lifeline could have helped the day that one of her third grade
    clients attempted suicide at school. His mother had no phone
    and was difficult to reach that day.
        I think you get the picture. The vast majority of Lifeline
    recipients are grateful seniors, deserving veterans, and many
    folks who are going through the hardest times in their lives,
    facing job loss, illnesses, disability, and family tragedies.
    For these people, Lifeline literally lives up to its name, and
    must continue.
        Speaking from personal experience, I used Lifeline about 10
    years ago after being laid off from my teaching job. I
    subscribed for a very brief period of time, but the media isn't
    telling my story because it isn't sensational. I used Lifeline
    to enhance my education, and today I am an attorney, and I,
    like everyone else I know that has ever relied on a government
    service, was not flaunting it around town. In fact, if
    anything, I was embarrassed about it. I wanted to get off the
    assistance as soon as I could and never look back, and that is
    what I did until today when I realized that voices like mine
    are going unheard to the detriment of this important program.
    So yes, Lifeline is money well spent.
        Thank you, and I look forward to your questions.
        [The prepared statement of Ms. Gonzalez follows:]

        [GRAPHIC] [TIFF OMITTED]

        Mr. Walden. We appreciate your testimony, and look forward
    to coming back with some questions, I am sure, from all--to all
    the panel members.
        We will now go to Mr. Geoff Feiss, who is the General
    Manager of the Montana Telecommunications Association. Mr.
    Feiss, we are glad to have you here today as well. Please go
    ahead with your testimony.

                        STATEMENT OF GEOFF FEISS

        Mr. Feiss. Thank you, Mr. Chairman. It is a pleasure and it
    is an honor to be invited to testify.
        Rural telecommunications providers are pleased to support
    the Lifeline program. We strongly endorse the principles of
    Universal Service, which are aimed at ensuring that all
    Americans have access to advanced communications services no
    matter where they live, and regardless of their income. The
    Lifeline program not only is the law, it is good policy. The
    program has been successful in enabling low income Americans to
    share in the many benefits of access to vital communications
    services.
        It is well known that the progress has suffered from
    exponential growth in recent years. While other Universal
    Service program funding has been flat over the years, Lifeline
    support exploded from $800 million to $2.2 billion in just a
    few years, almost entirely because of a rapid influx of prepaid
    wireless providers into the program. The number of wireless
    Lifeline providers grew from 41 in 2004, to nearly 700 today.
        The contribution factor has grown commensurately because of
    what Senator McCaskill terms ``the wireless explosion.''
    Continued growth of the Lifeline program threatens to
    jeopardize the integrity of the Universal Service Fund itself,
    including essential support for broadband investment in our
    Nation's schools and libraries, rural healthcare facilities,
    and high cost communities.
        The FCC last year took important steps to mitigate waste,
    fraud, and abuse that plagued the program by releasing the
    Lifeline reform order. The savings attained by the order are
    substantial. What would have been a $2.4 billion Lifeline
    demand at the end of 2012 was reduced to $2.2 billion, and the
    savings continue to come in. In fact, it appears that the
    Lifeline program funding may be less than $2 billion in 2013.
        But there is an end to these anticipated savings. While
    most of the savings from the reform order will have been
    achieved by the end of this year, there are many factors that
    threaten to put the program back on a growth path. For example,
    at least some portion of subscribers who were de-enrolled at
    the end of 2012 can be expected to reenroll in 2013 because
    they neglected to recertify during the recertification period.
        Second, the eligibility base has been expanded
    substantially to include several new programs. In Montana, at
    least anecdotally, we are seeing considerable growth in
    subscribership as the result of this expanded eligibility.
        Third, if broadband access becomes a permanent part of the
    program, we can expect further growth in demand.
        Fourth, only about 55 percent of those consumers who are
    eligible for Lifeline service actually subscribe. It may be
    unreasonable to expect 100 percent participation, but it is not
    unreasonable to anticipate greater growth.
        And finally, states and the FCC continue to designate
    Lifeline-only prepaid wireless providers as eligible to receive
    Lifeline support. There are two such applications in the
    pipeline and Montana alone.
        I submit that the program continues to offer considerable
    financial incentives for prepaid wireless providers to enter
    the market. First, while the FCC has made it a priority to
    transform Universal Service to support broadband investment,
    they have waived the requirement that Lifeline providers make
    any investment in facilities at all. Senator Pryor has called
    for the elimination of support for what he calls these
    ``virtual networks.''
        Second, the second financial incentive attracting prepaid
    wireless Lifeline-only providers to the program is found in the
    level of support that these providers receive. That is, prepaid
    wireless Lifeline-only providers receive $9.25 per subscriber,
    regardless of what it costs to provide service. Since these
    providers can offer their Lifeline service for free, it is
    reasonable to assume that $9.25 is more than enough to cover
    their costs. And by the way, there is nothing in the law that
    defines comparable rates as free.
        The Lifeline support mechanism, in my opinion, is similar
    to the identical support mechanism in the high cost program.
    When the level of identical support for competitive carriers
    reached $1 billion, half the amount of the Lifeline program,
    the FCC froze high cost identical support in 2008, and the
    Universal Service reform order released at the end of 2011, the
    FCC eliminated identical support altogether, saying that the
    level of support received under the mechanism ``bears no
    relation to the efficient cost of providing mobile service.''
        I believe the same logic applies to the amount of support
    provided to prepaid wireless Lifeline-only providers in the
    Lifeline program. Thus, I suggest that the FCC could eliminate
    the Lifeline identical support mechanism. The FCC either could
    make Lifeline support cost-based for prepaid wireless
    providers, or it could establish a default benchmark level of
    $3 per subscriber. Providers could submit cost data to the FCC,
    demonstrating why $3 is insufficient. A $3 benchmark could save
    the Lifeline program as much as $1 billion, while saving the
    same number of--while serving the same number of qualified low
    income consumers. Or, if the program were capped at today's
    level of around $2 billion, the Lifeline program would have
    room for considerable future growth in low income
    subscribership, and/or expansion of the program to include
    broadband access. Thus, any further growth of the program would
    be curtailed without putting additional pressure on the
    contribution factor or jeopardizing the other goals of
    Universal Service.
        Thanks again for the opportunity to testify. I look forward
    to any questions.
        [The prepared statement of Mr. Feiss follows:]

        [GRAPHIC] [TIFF OMITTED]

        Mr. Walden. Thank you, Mr. Feiss. We appreciate your
    comments and testimony.
        We will now turn to Mr. Christopher Guttman-McCabe, who is
    Vice President, Regulatory Affairs, CTIA--The Wireless
    Association. Welcome.

                STATEMENT OF CHRISTOPHER GUTTMAN-MCCABE

        Mr. Guttman-McCabe. Thank you, and good morning, Chairman
    Walden, Ranking Member Eshoo, and members of the subcommittee.
    On behalf of CTIA, I appreciate the opportunity to be a part of
    today's conversation about the Lifeline program.
        Throughout its history, the Lifeline program has advanced
    the goal of ensuring that every American has access to
    telecommunications services, and the wireless industry plays an
    increasingly vital role in furthering that objective.
        Nearly 3 decades after its creation and through an
    evolution shaped by Congress and FCC leaders from both parties,
    data demonstrates that Lifeline has been a critical component
    in the effort to expand telephone subscribership, particularly
    among those who live at or below the federal poverty level. But
    in spite of this progress, our work is not yet done. According
    to 2012 data from the Center for Disease Control, there are
    still several million American households that lack any phone
    service, something essential for full participation in the
    modern economy and the promotion of public safety.
        While the Lifeline program has played an important role in
    driving penetration, its growth during the recent recession has
    led some to question its value and cause what has traditionally
    been a program with broad bipartisan support to become
    politicized. This is unfortunate and I would like to take a
    moment to clear up two common misconceptions that skewed
    discussions over the program.
        The first misconception about the Lifeline program is that
    it relies upon taxpayer funds. This idea has been repeated in
    the press and on talk radio with such frequency that it is
    simply accepted by many as true. It is not. The fact is that
    like all Universal Service programs, Lifeline is funded through
    levies imposed on providers of interstate telecom services.
    Wireless companies, wireline companies, and VoIP providers
    contribute to the fund and generally recover those
    contributions from their end user customers. Funds are remitted
    not to the U.S. Treasury, but rather to USAC, an independent
    organization established by the FCC to administer the four USF
    programs. Congress appropriates no money for the fund, and
    monies collected and distributed by USAC do not impact the
    federal budget, the deficit, or the debt in any way. Because of
    that, increasing or decreasing the size of the Lifeline
    program, or any other component of the overall USF program,
    will not have an impact on the federal budget.
        The second frequent misconception about the Lifeline
    program is that it provides free cell phones to people. Some
    have taken this untrue assertion so far as to claim that
    government is subsidizing iPhones or will soon be subsidizing
    low income people with iPads. The reality is that some carriers
    provide a lower end device to eligible consumers. Lifeline
    support is attached only to the service, not to the devices.
        I hope you don't take my pushback on these points as a
    suggestion that we don't take the efficient operation of the
    Lifeline program seriously, because we do. The fact is that
    wireless consumers provide nearly half the funds that are
    collected for USF, and thus CTIA's members are very interested
    in assuring that all USF programs are run efficiently and with
    full accountability.
        Because CTIA is committed to the responsible stewardship of
    the Universal Service Funds, we supported the FCC in its effort
    to enact new Lifeline accountability measures. These reform
    measures include rules eliminating Lifeline support for more
    than one connection per household, a new monthly usage
    requirement, new standards for determining Lifeline
    eligibility, and new requirements for ETCs to review Lifeline
    subscribers' eligibility, something carriers previously were
    prohibited from doing. The FCC also committed to the creation
    of a database to prevent duplication of support across carriers
    in real time, as well as to create a nationwide eligibility
    database to ensure that only qualified consumers receive
    benefits. We look forward to the completion of these two
    efforts.
        Going forward, CTIA believes that the most important step
    that can be taken to safeguard the program and prevent fraud is
    for the FCC's 2012 reforms to be fully implemented. This is
    particularly true with respect to the creation of the duplicate
    and eligibility databases, which must be completed as
    expeditiously as possible.
        Over the nearly 3 decades since its creation, the Lifeline
    program has served an important purpose and enjoyed bipartisan
    support. CTIA is committed to working with the subcommittee and
    the Commission to advance this effort in a way that is
    technologically and competitively neutral and fiscally
    responsible. We believe this a laudable and attainable goal.
        Thank you. I look forward to your questions.
        [The prepared statement of Mr. Guttman-McCabe follows:]

        [GRAPHIC] [TIFF OMITTED]

        Mr. Walden. We appreciate your testimony as well.
        For our final witness today, we will go to Billy Jack
    Gregg, who is head of Billy Jack Gregg Universal Consulting. We
    appreciate your testimony.

                     STATEMENT OF BILLY JACK GREGG

        Mr. Gregg. May it please the committee, as you have heard
    here this morning, there are two sides to the advent of prepaid
    wireless providers as part of Lifeline. On the one hand,
    prepaid wireless service has been the most successful measure
    ever adopted to expand Lifeline service to low income
    consumers. On the other hand, prepaid wireless service has
    opened the door to numerous abuses and caused a rapid rise in
    the cost of the Lifeline program. Some states currently have
    more--have Lifeline subscribers far in excess of the eligible
    number of households. At the same time, other states have seen
    a decline in Lifeline subscribers, even though the number of
    low income households has risen.
        [Slide shown.]
        The first slide you are looking at today shows graphically
    the increase in the low income fund since 2006. Prior to 2008,
    the line that you see went off to the left in almost a flat
    manner, but then beginning with 2009 with the advent of prepaid
    wireless service, we see the rapid escalation, almost a
    tripling to $2.2 billion. Virtually all of this increase has
    been caused by payments to prepaid wireless carriers.
        Currently, payments from the fund average 58 percent of its
    potential maximum size based on the number of low income
    households in each state. However, Lifeline payments to the
    states vary widely. Six states currently receive more in low
    income support than the potential maximum indicated by the
    number of low income households in those states, and these are
    shown as--at the top of the slide. These states are Oklahoma,
    Maryland, Alaska, Louisiana, Arkansas, and Georgia. On the
    other end of the spectrum, the six states at the bottom of the
    slide currently receive only 10 percent or less of their
    potential support: Montana, South Dakota, Nebraska, Colorado,
    Hawaii, and Wyoming.
        The greatest increase in Lifeline subscribership has
    occurred in Maryland. In the third quarter of 2009, there were
    only 6,504 Lifeline subscribers in Maryland, representing only
    2 percent of the eligible low income households in that state.
    By the third quarter of 2012, the number of Lifeline
    subscribers in Maryland had risen almost 100 fold to 645,000.
    Moreover, the current number of Lifeline subscribers in
    Maryland is almost double the number of low income households
    in the state, as shown by the graph. The dashed red line is the
    number of eligible low income households. The blue line is the
    number of Lifeline subscribers by quarter. I would note,
    however, that in the last quarter shown that the number of
    subscribers drop by 100,000. This is the first quarter that the
    FCC's reforms took effect. We can expect to see a continuation
    of this trend as the quarters progress.
        In spite of the nationwide increase in Lifeline subscribers
    over the past 3 years, the number of subscribers in 11 states
    actually declined, with the largest drop occurring in
    California, traditionally one of the largest recipients of
    Lifeline support. Over the past 3 years, California has lost
    almost half a million Lifeline subscribers. At the same time,
    the number of low income households in California has risen by
    over 400,000. Once again, you can see the dashed red line is
    the number of eligible households, the blue line is the number
    of Lifeline subscribers.
        The FCC decisively addressed numerous flaws in the low
    income program in its 2012 Lifeline reform order. In order to
    build on the positive aspects of prepaid wireless Lifeline
    service, while at the same time guarding against further abuse
    of the system, the following additional measures should be
    adopted.
        One, the low income fund must operate within a budget, like
    all the other constituent funds of the Universal Service Fund.
        Two, the overall budget for the low income fund should be
    composed of caps on support to individual states. If demand in
    a particular state exceeds the cap, then payments to carriers
    in the state should be proportionally reduced to fit under the
    cap.
        Third, the FCC should conduct multiple pilot programs to
    determine whether a required minimum contribution from Lifeline
    recipients is appropriate, and if so, at what level.
        Fourth, the FCC should explore ways to provide incentives
    for state involvement in providing Lifeline service to as many
    eligible customers as possible.
        Fifth, the Lifeline subsidies should be portable and
    recipients should receive the same level of subsidy, regardless
    of the service they choose: landline, post-paid wireless,
    prepaid wireless, or broadband.
        And finally, federal and state governments should continue
    to promote participation by the low income customers in the
    Lifeline program by removing barriers to participation and
    encouraging automatic enrollment.
        In order to continue the public policy success of the
    Universal Service Fund and the low income fund, we must
    continue to support access, not excess.
        Thank you.
        [The prepared statement of Mr. Gregg follows:]

        [GRAPHIC] [TIFF OMITTED]

        Mr. Walden. Mr. Gregg, thank you for your testimony, and
    for the charts, graphs, and data behind them, and for your
    recommendations.
        We will now--and I want to thank all the witnesses for your
    testimony again.
        I will start out with questions. Ms. Veach, in the Lifeline
    reform order, the Commission said the reforms would put the
    Commission in a position to determine the appropriate budget
    for Lifeline in early 2013. Well, we are kind of into early
    2013. We are about out of early 2013. What is the status on the
    budget? When will we see that?
        Ms. Veach. Thank you, Mr. Chairman, and as you say, when
    the Commission adopted the reforms in 2012, the Commission
    unanimously determined not to put a budget on the program----
        Mr. Walden. Right.
        Ms. Veach [continuing]. Until it had an opportunity to
    assess the impact of the reforms. Rather, the Commission
    adopted a savings target for 2012, which----
        Mr. Walden. Right.
        Ms. Veach [continuing]. As the Bureau reported, we
    exceeded. And at the same time, the Commission wanted to assess
    the reforms and also has sought further comment on what the
    optimal rate should be. So the specific timing of when the
    Commission will move to a budget is up to the commissioners.
        Mr. Walden. Is what?
        Ms. Veach. Is up to the commissioners.
        Mr. Walden. So in other words, you don't know when we are
    going to see a budget.
        Ms. Veach. We continue to assess the impact of the reforms.
        Mr. Walden. Right. I don't mean to be rude, but the order
    said early 2013. We kind of expect the FCC to follow its own
    timelines there, and so we will keep pressing for that budget
    because I personally think that is important to have.
        Do you all--just quickly down the row in kind of a John
    Dingell yes or no answer, do you think it is important for the
    FCC to develop a budget in this area?
        Mr. Jones?
        Mr. Jones. Yes, I think it is important to have a budget,
    but before we adopt a budget there is a very technical and
    complex program, and I would urge the FCC to work with states
    that are reforming it. I think we proposed 15 ways----
        Mr. Walden. Yes, you did.
        Mr. Jones [continuing]. You could prohibit activation of
    phones, you could cut them off at 75 percent, benchmark for
    reactivation. There are ways instead of a top down approach, a
    bottoms up approach that may work.
        Mr. Walden. All right. Ms. Gonzalez, real briefly here on
    budget. Yes, no?
        Ms. Gonzalez. Yes, but I think first the FCC needs time to
    assess the reforms, and we wouldn't want it to set an arbitrary
    number that would cut anyone off from service.
        Mr. Walden. Mr. Feiss?
        Mr. Feiss. I agree, yes.
        Mr. Walden. Mr. Guttman-McCabe?
        Mr. Guttman-McCabe. You know, I think--echoing some of the
    earlier points, we need to see what the status is of the
    reforms, and I don't think this is simple. I mean, I think when
    you look at what do you do with the next person who becomes
    unemployed if you set a budget that limits the amount of
    support? You have a difficult decision to make.
        Mr. Walden. Mr. Gregg?
        Mr. Gregg. Yes, the total maximum size of the non-tribal
    Lifeline fund right now would be $2.9 billion if every eligible
    household received a year's worth of subsidy at $9.25. However,
    there are different ways you can cut that. You could establish
    a two-tiered system where the Federal Government would supply
    up to $2 billion of tier one support, basic fundamental
    support, and then an additional half billion if the states
    would match it. This would provide strong incentives for the
    states to pony up some money to help support Lifeline service.
        Currently, the reforms may have had the unintended impact
    of reducing incentives or creating counter-incentives for
    states to participate. In fact, Colorado just eliminated their
    Lifeline program about 3 weeks ago, in part because of the
    perception that the Federal Government is now paying the entire
    cost of the program.
        Mr. Walden. So I want to ask, perhaps you, Mr. Gregg, or
    Mr. Jones, about the $9.25 rate. Where does that come from? Is
    that evaluated on a regular basis? Is it an accurate rate?
        Mr. Gregg. The $9.25 is simply an average of what was paid
    out at the time the FCC adopted their reform order in 2012.
        Mr. Walden. OK.
        Mr. Gregg. It had been made up, and as people explained
    earlier, originally the Lifeline subsidy was to offset the
    subscriber line charge that was imposed when the Bell system
    was broken up in the early '80s.
        Mr. Walden. Right.
        Mr. Gregg. Then, whenever the Lifeline program was included
    in statute in the '96 Telecom Act, there were two additional
    tiers added. One was an additional $1.75 that was given to all
    states if they would guarantee it was passed through to
    customers, and then an additional $1.75 based on state
    matching. That is what is now gone away----
        Mr. Walden. The market has changed so much since '96. In
    all competition, Mr. Jones, is $9.25 an appropriate rate?
        Mr. Jones. Probably not. NARUC has no resolution on this
    point. I will speak for myself. When TracFone came before us
    for a prepaid wireless ETC designation, my commissioner staff
    and I asked the TracFone people a lot of questions on what does
    it actually cost----
        Mr. Walden. Right.
        Mr. Jones [continuing]. To provide this service, and they
    refused to give us any information. Why? Because under law, we
    have no jurisdiction over wireless carriers and the FCC rules
    do not permit a cost-based determination. So it kind of places
    states in a difficult position to decide whether or not it is
    cost-based or not. So the FCC just--as Billy Jack said, they
    did an averaging of the select $9.25.
        Mr. Walden. Mr. Feiss--do you have any comment on this, Mr.
    Feiss?
        Mr. Feiss. I think Commissioner Jones summed it up. We
    don't have the data, but it----
        Mr. Walden. So we don't know whether $9.25 is a lot, not
    enough, but boy, it sure seems like there are a lot of entrants
    in the non-facilities based----
        Mr. Jones. Well, just based on our evidence, I mean, we
    could have an argument about competition in a subsidy market,
    but this is true competition in the subsidy market and I would
    conclude that the non-facilities based ETCs are making a
    substantial margin on the service.
        Mr. Walden. There is a fine line between competition and
    gluttony here, I think, so we have to watch for that.
        I am going to turn now to my colleague from California, Ms.
    Eshoo.
        Ms. Eshoo. Thank you, Mr. Chairman.
        First, I would like to ask for a unanimous consent request
    to submit for the record--we have a long list of support
    letters that we would like to have entered into the record.
        Mr. Walden. I believe we have them all here, and we will
    accede to that request.
        [The information appears at the conclusion of the hearing.]
        Ms. Eshoo. Thank you very, very much. Thank you to all of
    the witnesses. You have given us, I think, excellent testimony
    this morning.
        Now, I don't know if this was given to all of the members,
    but I think our respective staffs received this from the FCC.
    It is the Lifeline reform overview, and on page 8, it is very
    interesting because it starts with January 2012, and it goes to
    April of 2013. And this is the number of Lifeline subscribers
    in the millions. Starting in January of '12, it was 15.8. It
    peaked August 2012 to 18.2, and the graphs show that it
    continues to move down, and at the lowest rate right now in
    terms of Lifeline subscribers, it is 13.2 million. So this says
    to me that it is moving in the right direction, I mean, that
    the reforms are working.
        Now, I am trying to figure out what the biggest problem is,
    most frankly. There are some wild allegations, full page ads,
    pro and con, Obama phones, you know, I think what we need to
    stay away from, with all due respect, is simply a disdain for
    the President, and then moving that to apply to policies in
    telecommunications. I mean, it just doesn't mix. That is like
    water and oil. It doesn't make sense. It is not dignified. I
    don't want to have anything to do with that.
        But what I do want to hear from the witnesses are the
    following things. To the FCC, this whole issue of a cap, what
    do you think of that? I do think that the chairman has raised a
    good point about the budget. When do you anticipate being able
    to not only assess the success of the reforms that the FCC is
    putting into place so that you can then arrive at a budget? I
    don't know about this $9.25. Who has the authority to even dive
    into that? I mean, I am hearing that, Mr. Jones, that your
    organization can't, that is why you couldn't get an answer. Is
    it the FCC or do we need to do oversight and bring people in
    and do it ourselves? I mean, I think that that is a legitimate
    question.
        I also, to Mr. Guttman-McCabe, as you know, I strongly
    support cell phone unlocking so consumers can switch carriers
    while keeping their existing phones. Given that the Lifeline
    program only subsidizes service and not the device, I don't
    know how many members know this, but the government does not
    provide any device. It is, most frankly, the wireless industry.
    I mean, everything is moving to wireless anything, that is why
    we are trying to find more spectrum to support all of this. But
    wireless industry advertises, right?
        Mr. Guttman-McCabe. Correct, yes.
        Ms. Eshoo. I mean, you promote this, so----
        Mr. Guttman-McCabe. Yes, Congresswoman. I mean----
        Ms. Eshoo. I think that such a policy would enable support
    dollars to go further and expand the use of the universe of
    phones that can be used with the program. So I would like to
    know what you think of that.
        So maybe Ms. Gonzalez, you want to comment on cap, so why
    don't we start with the FCC. Maybe, Mr. Jones, you want to
    comment on the several items I have raised, Ms. Gonzalez, and
    Mr. Guttman-McCabe. So why don't we go quickly. I have got 32
    seconds, but I think the chairman will let you answer.
        Mr. Walden. Quickly.
        Ms. Veach. Thank you, Ranking Member.
        Ms. Eshoo. I got it all in.
        Ms. Veach. The issue of the cap is tied to the issue of
    what the optimal subsidy amount should be. The Commission is
    currently considering, after taking in public comment, the
    $9.25 rate and----
        Ms. Eshoo. So you have the authority to review that rate,
    and if you think it needs to change, you have the authority to
    change it?
        Ms. Veach. That is correct.
        Ms. Eshoo. And when do you think you are going to complete
    that?
        Ms. Veach. I can't speak as to when the commissioners----
        Ms. Eshoo. This year?
        Ms. Veach [continuing]. Would vote on that. It is just not
    within my ability to say.
        Ms. Eshoo. Can you get back to us on it?
        Ms. Veach. That decision is highly relevant to what the
    budget for the program should be.
        Ms. Eshoo. Can you get back to us on that?
        Ms. Veach. I will do so.
        Ms. Eshoo. Thank you.
        Mr. Jones. Just quickly, NARUC does not have a position
    whether the $9.25 is appropriate or not. As I said, we operate
    through resolution. We have two resolutions on plank, but
    speaking for myself, I think Julie hit the nail on the head.
    They do have the authority. It has to go to the five
    commissioners--four commissioners, whatever it is going to be
    right now with the chairman leaving. But the states could offer
    their help. As I said, we do--I think certain states have had
    better luck than we have in getting a composition of rates, and
    as Mr. Feiss said, in Montana. Certain states may help out, so
    this may be worthwhile to refer the issue to the Joint Board,
    again, on Universal Service, to work out some of these details.
        Ms. Gonzalez. To the extent that a cap may cut eligible
    people off from service, it is a bad idea, and certainly right
    now when the FCC has not fully implemented the reforms.
        Ms. Eshoo. Thank you.
        Mr. Feiss. Congresswoman, it is--this is the only program
    that doesn't have a budget, and ironically, one could argue
    that the FCC actually did it right with Lifeline to implement
    reforms first, see how the reforms work, and then determine
    what the appropriate level of that program is. They have not
    done that with the other three programs. I wish they had, but
    they haven't, so it is probably time to consider a budget and
    work from there.
        Ms. Eshoo. Thank you.
        Mr. Guttman-McCabe. Congresswoman, I think it is fair to
    point out there has been a lot of discussion and debate about
    the provision of phones. The carriers subsidize the phones
    themselves, and I have two here. I brought them just so people
    can look. These phones will not make you the envy of your
    friends and neighbors, oK. They are kind of circa-2000 at best.
    Hopefully you can't see who the manufacturers are so I don't
    get myself in trouble, but the reality is, these are not the
    phones that get you advanced access to, you know, to
    communications of the future. They are $19.95 at retail at
    most. They are designed to do exactly what the program was
    designed for, which is to get you access to basic
    telecommunications.
        So anyone wants to see them afterward, I am happy to bring
    them to you, but you know, you can see we are not talking
    iPhones, we are not talking iPads, we are talking basic
    service. And that is funded by the carriers who participate in
    the program.
        Ms. Eshoo. Thank you.
        Mr. Gregg. Congresswoman, as you saw in the second slide,
    we need to work on both ends. We have some states that have
    more Lifeline subscribers than there actually are low income
    households. Obviously, that subscribership has to come down.
    But we also have many more states that have fewer Lifeline
    subscribers than there are low income households. So we need to
    work on increasing participation there.
        Ms. Eshoo. Thank you very much to all of you.
        Mr. Walden. OK. We will now turn to the vice chair of the
    subcommittee, the gentleman from Ohio, Mr. Latta.
        Mr. Latta. Thank you, Mr. Chairman, and again, thank you
    very much to our panel for being with us today. It has been
    very, very informative and again, thank you for being here.
        Mr. Jones, if I could start with you, if I may. In your
    testimony, you listed a number of additional reforms that the
    NARUC members have suggested to improve the integrity of the
    Lifeline fund, including consumer co-pays, a return and
    requirement that carriers have their own facilities, reforms to
    the marketing practices of Lifeline carriers, and procedural
    requirements for carriers enrolling new Lifeline customers.
    Could you elaborate on those suggestions?
        Mr. Jones. Thank you. Yes, I could. Again, NARUC does--
    operates by resolution. We do not have resolutions on point on
    these 15 recommendations that we made to you. We want it to be
    responsive. So these are ideas for your consideration, you and
    your staffs. But speaking for myself, I will mention three.
        The national duplicate database is really important to get
    up and going. I would encourage the subcommittee to have strong
    oversight on Ms. Veach's program. USAC announced this week that
    they were going to finish the duplicate database by the end of
    the year. Let's get it done. It was supposed to be done in
    February. We need to get that up and going. So the database
    development, and then you have the other database, the
    eligibility database. That is going to be more complex because
    the order, as you know, introduces three more benchmarks,
    including low income energy assistance, to feed into this
    massive database for the initial eligibility. So it is very
    important to get that eligibility database up and going.
        The other thing I would urge them to do is rescind the
    blanket forbearance on the facilities requirement given to
    prepaid wireless carriers. This was done in 2005. The FCC could
    rescind that if the subcommittee plays a useful role in
    providing oversight. That is something you could do.
        The other thing you could do is prohibit activation of a
    handset before the initial eligibility is done. It doesn't make
    sense to me--again, speaking personally--for a handset to be
    activated before either a state database or a national database
    is queried. You have the four last numbers of the Social
    Security number or you have a subscriber ID. I mean, this is
    just kind of commonsense business and database. You should be
    able to develop a system to query, and if that person is a
    duplicate, you can get it at the front end and not activate the
    handset.
        Those are three.
        Mr. Latta. OK, thank you.
        Mr. Guttman-McCabe, if I could turn to you. Senator Coburn
    brought to life in disturbing press coverage out in Oklahoma of
    people with model subsidized cell phones. I guess the question
    is how widespread of abuse is this, and is the problem related
    to vendors who advertise free cell phones in low income
    neighborhoods, and what is the industry doing, if anything, to
    combat that problem? And what is or could the FCC also be doing
    to curb that abuse?
        Mr. Guttman-McCabe. Sure. Thank you, Congressman.
        First of all, I think at times people tend to conflate bad
    actors and MVNOs, people that don't have networks, and conflate
    MVNOs with bad actors. There are a lot of non-facilities based
    carriers who are actually good actors, do a very good job with
    this program as Mr. Gregg suggested, actually move services out
    to people who otherwise wouldn't get them. The reality is there
    are some bad actors in this program, and one thing you will
    hear from us, and you may hear me say it, depending upon how
    many times I am asked is if we can have responsibility,
    efficiency, and accountability in this program, we are all for
    it. I mean, 100 percent. We think it needs to happen. There
    can't be states like Mr. Gregg suggested have significantly
    above 100 percent participation above the poverty level.
        So for us, we want a program that is smart, intelligent,
    well-targeted, that allows for a range of technology neutral
    participants. If companies decide that they want to subsidize,
    you know, a relatively inexpensive phone to allow the person to
    get access to it, I don't think that is much different than
    someone who gets a free landline phone as part of their
    landline service. So, looking at wireless differently, I find
    it concerning because it is no different than--I don't pay for
    my landline phone, in essence, in my house, which I still
    happen to have. It seems to be moving towards the minority. But
    you know, we are here talking about potentially removing
    wireless from the program at the same time that all of us are
    reading articles about the overwhelming majority of people are
    beginning to move away from a landline phone. I just read this
    week that the landline phone is now the third most popular
    phone in the U.S. households, wireless being number one, VoIP
    being number two, and then landlines.
        So there definitely are things that have to be rooted out,
    you know. I would question the advertising of some of the
    companies and the marketing of some of the companies that are
    providing the service, but I don't think you can say that MVNO
    equals bad actor, because there are a great deal of them that
    are very good actors and are really doing a positive thing with
    this program. And if you look at their subscribers, I mean,
    when 79 percent of your Lifeline subscribers have a household
    income below $15,000, I think you are targeting the right
    people. I think that is the good that this bipartisan program
    was designed for.
        Mr. Latta. Thank you. Mr. Chairman, my time is expired and
    I yield back.
        Mr. Walden. Thank the gentleman for his questions.
        We will turn now to the gentlelady from California, Ms.
    Matsui, for 5 minutes.
        Ms. Matsui. Thank you, Mr. Chairman.
        First of all, I just want to ask a quick question of Ms.
    Veach. Is there such a thing as a free government phone? Yes or
    no?
        Ms. Veach. No, there is not.
        Ms. Matsui. OK. Is it accurate to say that the Lifeline
    program is not contributing to any current growth within the
    USF fund at this point?
        Ms. Veach. That is correct.
        Ms. Matsui. OK. Mr. Guttman-McCabe, I strongly believe that
    Lifeline should be reformed and modernized in a responsible
    manner, and it must account for America's ever-reliance on the
    Internet and innovation economy. One hundred million Americans
    are still not adopted to broadband, and coupled with the fact
    that nearly 80 percent of available jobs are only accessed by
    online applications, and both need to be addressed. Do you
    support the concept of modernizing Lifeline to support
    broadband?
        Mr. Guttman-McCabe. Congresswoman, I think--and I
    congratulate you. It is a conversation that we as a country,
    and particularly you as policymakers, have to have. I mean, the
    country is absolutely moving in that direction. The reality, as
    I said a moment ago, is that if people aren't choosing wireless
    phones, they are sort of choosing sort of VoIP or over the top
    phones with their broadband connection. You know, we are seeing
    a movement in that way that makes absolute sense for us to have
    this discussion, and we are having it as part of the broader
    Universal Service program.
        Ms. Matsui. No, and that is good, because I find it kind of
    interesting we are having this discussion about landlines and
    wireless and as we all know, that most of us have been moving
    to wireless for quite some time. And now we are also talking
    about broadband too, and everybody seems to want to do that,
    but you got to get there and if we are stuck in the landline
    business, we won't get there to the right degree.
        I would also like to ask you, too. A study by the
    Telecommunications Policy Institute found that 59 cents of
    every dollar spent in the USF High Cost Fund goes to the
    carrier recipient's overhead and administrative expenses. That
    is only 41 cents out of every rural USF subsidy dollar goes to
    building rural networks. But Lifeline offers a discount on the
    monthly price of service. One hundred percent of every Lifeline
    subsidy dollar goes to reducing a low income consumer's monthly
    phone bill.
        So given these differences, wouldn't you say that Lifeline
    is already the far more efficient of the two programs, and that
    we should devote as much attention to reducing waste, fraud,
    and abuse in the subsidies we pay to carriers as we are in the
    subsidies paid to low income consumers?
        Mr. Guttman-McCabe. Yes, I think that is a key--those are
    key points to focus on. I think that gets lost at times, but
    the Lifeline subsidy goes directly to the consumer to offset
    their bill. You know, Mr. Feiss talked a little bit about cost-
    based support and things like that. The FCC has argued against
    sort of a race to the top, against a race to say here are my
    costs and I should have, you know, some return above that.
        I know several of the panelists suggest that we also should
    be looking at the High Cost Fund because of the fact that not
    all of those dollars are rationally and intelligently spent. I
    think you hit a key point, which is the Lifeline program, it is
    means-tested, it is designed to target exactly to the people
    who need it, people who, you know, we are talking household
    incomes in the mid to low teens in the thousands of dollars,
    and it is a one-to-one offset. I mean, every dollar that goes
    in offsets the cost that they otherwise would pay.
        Ms. Matsui. Well thank you very much. I compliment the FCC
    on the reforms that have been taking place in, I guess, the
    last 8 months in the reduction of, I guess, about $5 million.
    And these reforms are taking place, and I think it is timely we
    do this hearing. On the other hand, I believe we need more time
    to really figure out the real impact of this.
        And I also understand, too, that it goes beyond this to a
    great degree because it is very uneven. We have states that are
    maybe oversubscribed, and other states that, you know, are not
    at all to point where we are reaching everyone. And so to me,
    this needs to be looked at and studied to a degree that we have
    not done yet.
        My goal is to ensure that every American that qualifies get
    access to one of three things, especially in my bill, that they
    are able--landline, wireless, broadband, choose. But we are not
    going to make any progress if we get stuck on things like caps
    for Lifeline, because Lifeline is a different situation that I
    believe even the High Cost Fund, and I am not denigrating High
    Cost Fund at all, but I believe that we are looking at
    something we want to expand access in a reasonable manner, and
    we want to make sure we have accountability there.
        So I ask each of you if you are agreed upon that, that
    Lifeline needs to be expanded in a reasonable way so we capture
    more of the qualified households and not get into a fight about
    all about whether or not they are doing the right thing or not.
    Are you all agreed that we need Lifeline?
        Ms. Veach. Yes.
        Mr. Jones. Yes.
        Mr. Feiss. Yes.
        Mr. Guttman-McCabe. Yes.
        Mr. Gregg. Yes, and we should focus on the customer, rather
    than the carriers. That is why we should have a straight
    subsidy, whatever the level is, and let the customer apply it
    to the service that they choose, that meets their needs, and
    that way, their choices will drive the market.
        Ms. Matsui. OK. You are all agreed on that one?
        Mr. Feiss. I think Mr. Gregg's conclusion, access versus
    excess, was well said.
        Ms. Matsui. OK.
        Mr. Jones. Congresswoman, just with the proper
    accountability in place.
        Ms. Matsui. I understand.
        Mr. Jones. We have some strong concerns about the High Cost
    Fund being at $4.5 billion. We think that is appropriate, too.
        Ms. Matsui. OK. Thank you very much, and I am sorry, Mr.
    Chairman.
        Mr. Walden. That is all right.
        Ms. Matsui. Thank you.
        Mr. Walden. It is good to get the answers.
        We will turn now to the gentleman from Illinois, Mr.
    Shimkus, for 5 minutes.
        Mr. Shimkus. Thank you, Mr. Chairman. This is a great
    hearing. I like the terminology ``access, not excess.'' I think
    probably a lot of us will use that, Mr. Gregg. Thank you for
    that.
        I actually appreciate the Minority's handing me the letters
    and all this documentation. I did go to one comment from
    Illinois that said make it more efficient. Don't drop it. There
    is a reason it is called Lifeline. So that is where we need to
    go, but I don't think you all understand the anger that is out
    there in America over this.
        I live right next to St. Louis, Missouri, so Senator
    McCaskill's responding to this anger of a free phone, and to
    say it is not a free phone is not accurate. It is a free phone.
    Someone gets a phone and they get minutes and they don't get
    billed, for the most part. And in this day and age, people
    really have a hard time understanding it. So you all are
    supporters of this. You are doing a terrible job of marketing
    it, because you have lost the public opinion war on this, and
    we can't--and it is tough to get the genie back in the bottle.
    Actually, that is why I appreciate the Minority for asking for
    the hearing. This is part of that educational process. But you
    all got a long, long way to go.
        And for Ranking Member Waxman to say no one uses an Obama
    phone, he doesn't go to the web. There is an Obamaphone.net
    that answers a lot of these questions accurately on who is
    qualified and who is--but that is how you pull it up. You got
    the Obama phone rap out there, and you can just Google it, and
    that leads to this frustration and anger about people getting
    free phones. And the free phones are--they are receiving it
    based upon rate payers, right? People are paying rates. We are
    all paying.
        My first question to Mr. Guttman-McCabe, and I am a friend
    of the industry, you know that. Can you tell me how many people
    have one of these free phones but then use their 250 minutes,
    go in, and pay for more minutes?
        Mr. Guttman-McCabe. I don't know the answer to that,
    Congressman. I think we can--I can see if we can track that
    down and get back to you. I don't----
        Mr. Shimkus. Some of my friends were not willing to provide
    us that information, but let me pose a question. If they get a
    free phone and then they can go in and pay for doubling of the
    minutes, does that pose a question whether they should have a
    free phone or not?
        Mr. Guttman-McCabe. Well I think if you go back and you
    look at--and the Commission has put in some of these, you know,
    some of these measures, I think----
        Mr. Shimkus. Should part of the measures be are they
    purchasing more minutes?
        Mr. Guttman-McCabe. Well, I think the measures should be do
    you satisfy some threshold to qualify, and so if the
    threshold----
        Mr. Shimkus. Let me ask another question to your industry.
    What incentive is there for the industry to do due diligence on
    qualifications to receive an Obama phone?
        Mr. Guttman-McCabe. Well in the past, not only was there
    not--I won't say there was not incentive. We weren't allowed to
    do eligibility requirements.
        Mr. Shimkus. Well, and that is a problem.
        Mr. Guttman-McCabe. It was self-certification.
        Mr. Shimkus. Right.
        Mr. Guttman-McCabe. But we--in 2010, we pushed for this, so
    this is not something that, you know, came about on its own.
    This is something we fully endorsed and strongly believe and
    continue to push the Commission for an eligibility database and
    a duplicates database. Because I agree with you, we are not
    winning the PR discussion. It is about having something that is
    efficient and accountable, and yet still works.
        Mr. Shimkus. Let me give you the exact thing. We are going
    to have issues with the young new staffers here in Washington,
    D.C., and we are going to get to offer them, because of the
    income qualifications, they will be able to qualify for a free
    phone based upon how some of us compensate our employees and
    our staff, and Medicaid. What a great benefit package to come
    to work in Washington with that venue.
        Ms. Veach, the final question that I have is there is
    discussion about expanding this to broadband. Do you know what
    percentage of current Lifeline subscribers already have
    broadband service?
        Ms. Veach. Congressman, we don't track individual
    subscribers, so I don't have that data.
        Mr. Shimkus. OK, I think we probably would try to look
    forward to see if you can then provide that at some time,
    especially as we move in this debate.
        And with that, I yield back my time.
        Mr. Walden. Now turn to the gentleman from New Mexico, I
    believe. Mr. Lujan, I think you are up next.
        Mr. Lujan. Thank you very much.
        And I don't know how many of you have been to
    Obamaphone.net, but here it is, and Obamaphone.net looks like--
    it is a nice Web site, nice colors. I like the color blue, and
    it is in here quite a bit. And it has this great picture of
    President Obama up on top, but when you start scrolling down,
    it says sign up now. So it says the Obama phone government
    benefit program. And when I see this notion that says sign up
    now, I would think, as a consumer, that if I am on this Web
    site and I click there, that I am signing up now for a phone.
    But if you scroll down to the bottom of this Web site--and I am
    glad I have good eyesight, because it is really small--it says
    ``Obamaphone.net is an independently owned and operated Web
    site that is in no way affiliated with the United States
    government, departments within the Federal Government, or any
    state or local jurisdiction located inherently therein.'' And
    then it kind of runs away, because I guess the footnote is not
    needed as much as the rest of the propaganda on this Web site.
        And so I wonder if it is fraudulent or not for us to put on
    a Web site that appears to be a federal Web site telling
    consumers they can sign up for a Lifeline phone, collecting
    information that is in no way affiliated with the Federal
    Government, as opposed to encouraging people who go to this Web
    site, I encourage you to go look at it so you never go to it
    again, so that we can get through this. That is part of what
    the FCC is trying to do. We are trying to crack down on waste,
    fraud, and abuse here, and we shouldn't direct people into
    areas that are purported to maybe sign up for a Web site that
    are probably signing up for sharing their consumer information
    in one way or another. I tried to get to the privacy notice on
    the site, but I couldn't find it. I guess I am not savvy
    enough. But I was able to get to that disclaimer at the bottom.
        So I just think, Mr. Chairman, that as we talk about these
    sites and what is happening here, that we agree that there are
    important programs across the Federal Government that are
    needed. I come from a rural state. This has been purported to
    be a program that is abused in only urban parts or needed in
    urban parts of the United States. I think that there are some
    letters that have been submitted, and Mr. Chairman, I would ask
    unanimous consent to submit two letters from two rural
    organizations, the National Grains on the Order of Patrons of
    Husbandry, and Rural Broadband, and in it, Mr. Chairman, one of
    the letters cites that ``Lifeline is an essential to the
    success of our country because it ensures that even the most
    unserved areas are safe, able to communicate, and included.
    Simply put, any cuts to Lifeline will leave rural, tribal, and
    low income communities more vulnerable and locked out of full
    participation.'' And I also have two letters from two tribes,
    Gila River Telecom and Mescalero Apache Telecom, Incorporated,
    that I would like to ask unanimous consent to submit into the
    record.
        Mr. Walden. I believe those were part of the Minority's
    packet that has already been submitted. We went through that.
        Mr. Lujan. Thank you very much. I thank Ms. Eshoo for her
    wisdom, as well as for her submissions, so thank you and the
    staff very much, Ms. Eshoo.
        And so with that, Mr. Chairman, I want to--I have a few
    questions to Mr. Jones, and I appreciate you being here, Mr.
    Jones, having been a former member of NARUC myself when I was
    fortunate to be part of the New Mexico Regulatory Commission,
    which is the equivalent of utility commissions across the
    country.
        You stated in your testimony that ``The ability of some
    states to audit and/or investigate waste, fraud, and abuse may
    be hampered by rules or laws limiting or altogether removing
    states' authority over wireless companies.'' Could you explain
    how that could be the case, and with the concerns in some
    states, what can NARUC do to help ensure that states will adopt
    stronger policies in those areas where maybe we see rules that
    aren't as strong?
        Mr. Jones. Congressman, that mainly refers to many state
    statutes across the country, largely, I think, with Mr.
    Guttman-McCabe's companies that have gone and lobbied state
    legislatures to prohibit PUCs from regulating or having
    anything to do with wireless service. The laws are written a
    little bit differently, but it makes it very difficult for
    state PUCs to have jurisdiction over things like e-911, TRS,
    High Cost Funds, or Universal Service. So that prevents us, and
    also 214(e), Section 214(e) that governs eligible
    telecommunications carriers, that is the federal statute that
    we operate under. It is written very broadly and it doesn't
    specify the type of technology, so this has been the subject of
    litigation in many states where some of the wireless carriers
    push hack on us.
        What can we do? We can work with--I think the best thing we
    can do is work with Ms. Veach and her colleagues at the FCC
    through the Joint Board process where we deal with these
    difficult issues. They have better access to information on
    cost and all sorts of things than we do. And in that
    confidential setting of the Joint Board process, I think we can
    get at some of these issues.
        Mr. Lujan. Mr. Chairman, thank you so much. I know my time
    is expired. I have some other questions I will submit to the
    record. I was so compelled with the Obamaphone.net, Mr.
    Chairman, that I had to use a little of my time to talk about
    that wonderful Web site. Thank you very much.
        Mr. Walden. Appreciate the gentleman's questions and
    comments.
        We will now turn to Mr. Terry for 5 minutes.
        Mr. Terry. Thank you, Mr. Chairman.
        To Mr. Feiss, at least in the State of Nebraska over the
    last couple of years we have seen now 51 different Lifeline
    providers apply with our PUC in Nebraska. Are you seeing the
    same explosion of--I am putting fictitional quote marks on
    competitiveness and competition in Montana?
        Mr. Feiss. Congressman Terry, we have two pending
    applications for Lifeline--only prepaid wireless support.
        Mr. Terry. Two?
        Mr. Feiss. Right, and those----
        Mr. Terry. Nebraska has 51 over the last couple years. Only
    two. That is interesting.
        Mr. Jones, is NARUC seeing that level of explosion, and
    this builds--the next part of that question is how do we
    determine what the appropriate price line is, because if there
    is 51 carriers coming in Nebraska to get their $9.25 per phone,
    there is a hell of an incentive going on.
        Mr. Jones. Right. We have designated six wireless CTCs for
    support with the wireline, and I think we have--I am going to
    up the ante that Mr. Feiss said. I think we have eight or ten
    pending before our staff right now. So we have designated six
    on the wireline side. We have many more wireline carriers. But
    to put this in perspective, of the eligible low income
    households in the State of Washington, even with that support
    we are only reaching 33 percent of the low income people in our
    state. That is Lifeline, wireless, everything together.
        So as Billy Jack said, if we want to get to 50, 60 percent,
    if that is a valid social goal to have people connected for
    these valuable services, we have a long ways to go. But
    obviously it costs money.
        What can we do to get at the cost? It is really with the
    FCC, I think. The FCC has the ability to determine if the $9.25
    per month is appropriate or not.
        Mr. Terry. So Ms. Veach, how do you reply?
        Ms. Veach. Congressman, on the question of the $9.25 rate,
    we have sought public comment on that question and are looking
    at the record, and will continue to conduct an open proceeding
    to put the commissioners in a position to determine what the
    optimal rate should be.
        Mr. Terry. In a public comment process, will you be able to
    obtain the true cost of providing this service?
        Ms. Veach. I think there are different types of services.
    As we have heard, there are wireless services as well as
    landline services, so----
        Mr. Terry. All right, so for the variety of services, are
    you going to be able, in a public comment setting, obtain cost
    information?
        Ms. Veach. In addition to the record that is already
    developed, if necessary the Commission can ask for more data if
    it needs from Mr. Guttman-McCabe's members or others.
        Mr. Terry. So is that a yes that you are obtaining that
    information through the public comment?
        Ms. Veach. We have invited comment. I would be happy to
    work with your office to let you know whether we have obtained
    the kind of information you are asking about already or need--
    --
        Mr. Terry. Is there a red flag with the FCC that there is
    that many competitors coming into what used to be, just a few
    years ago, a very limited market? Does that raise a red flag?
        Ms. Veach. Well absolutely. In our reforms, we required
    that before any non-facilities based carrier could be
    designated to receive support, it first had to have a
    compliance plan approved with the Commission, and we have only
    approved 20 of those since the reforms went out. The next step,
    then, is to approach the relevant state PUC to seek
    designation.
        Mr. Terry. OK. I will yield back.
        Mr. Walden. Gentleman yields back his time.
        Now recognize the gentleman from Illinois, my friend Mr.
    Rush, for 5 minutes.
        Mr. Rush. I want to thank you, Mr. Chairman. This has been
    quite a hearing, and I am not surprised. I want to congratulate
    the Ranking Member for bringing this issue to the floor.
        But as I sit here and hear some of the questions and some
    of the commentary, it really, really infuriates me about some
    of the attitudes and opinions and some of the remarks that I
    have heard. I am trying to maintain my cool, so to speak.
        But first of all, Mr. Chairman, there are some letters that
    I would like to enter into the record, and some of them may be
    included, but I am told that--in your packet, but I am told
    that they aren't included, and we have a statement from the
    NAACP, the Leadership Council on Civil Rights and Human Rights,
    the United Church of Christ, the National Organization for
    Women, the Asian American Justice Center, Disability Rights,
    Education, and Defense Fund, and from the CWL. I would like
    those included in the record.
        Mr. Walden. Without objection.
        [The information appears at the conclusion of the hearing.]
        Mr. Rush. All right. Mr. Chairman, I want to ask maybe Ms.
    Veach or anybody can answer this question. Was there any
    noticeable uptake in the Lifeline services program during and
    immediately after Hurricane Katrina?
        Ms. Veach. Congressman, as a matter of fact, it was during
    the time of recovery from Hurricane Katrina when the Commission
    permitted wireless providers to enter the program to provide
    vital services to the consumers affected.
        Mr. Rush. Well, this notion of this service or these phones
    being called an Obama phone, what do you think is the rationale
    behind it? Because if you are going to call it any kind of
    nonpolitical, non-class, and I might indicate, non-racist way,
    then it certainly should be called a Bush-Obama phone, isn't
    that correct?
        Ms. Veach. Congressman, you are absolutely correct that a
    lot of the expansion of the program that happened without
    proper oversight was during prior Administrations. The reforms
    that the FCC has put in place in the last 3, 4 years will
    ensure that only eligible subscribers can participate, and that
    there are appropriate checks in place on the consumers as well
    as the carriers.
        Mr. Rush. Well, let's look at who uses Lifeline. It is
    certainly not just members of citizen and urban centers. This
    program supports older Americans. One carrier reported that 47
    percent of its users are 50 years or older, and 16 percent are
    over 60. Now I know, because that is my age category, I like
    music, but I am not too fond of rap music, so for this service
    to be characterized as being or associated with something
    called Obama Rap, what do you think about that?
        Ms. Veach. As you say, the service is available without
    regard to any demographic characteristics: seniors, the
    elderly, disabled, rural as well as urban, based on income
    rates or participation in another federal assistance program.
    It is available in all 50 states.
        Mr. Rush. Let me ask--I see my time is winding down and I
    have a lot of other questions. Is there any of the witnesses at
    the table, are you aware of any increase in mobile phones in
    Afghanistan?
        Mr. Jones. No, sir, I am not.
        Ms. Gonzalez. I can't answer that question.
        Mr. Rush. I was at a meeting earlier today with an expert,
    and there is an increase in mobile phone use in Afghanistan.
    And my understanding that it is thoroughly subsidized. To a
    great extent, it is thoroughly subsidized. So our taxpayer
    dollars are going to Afghanistan to increase mobile phone uses
    in Afghanistan, but here we are making much--and some of it
    legitimate--much ado about possibly job seekers, 26 percent of
    users reported by--unemployed and 62 percent are employed on
    only a part-time basis. Fifty-two percent of the subscribers
    are Caucasian, 30 percent are African American, and 10 percent
    are Hispanic. I mean, we are making ado about something that
    really doesn't--that has been a fairly good program.
        The subject of this hearing is ``The Lifeline Fund: Money
    Well Spent?'' with a question mark. My answer to that is yes,
    it is well spent. There are some problems, but I think that FCC
    is moving to address the problems. I think they should be
    commended. But whether this program should be capped, no, it
    should not be capped, especially when the unemployment--the
    number of poor people in this country is on a dramatic
    increase, then why would we try to cap this particular program?
        Mr. Chairman, I yield back. I just want to--I don't like
    the message that is emanating from this hearing, and I think it
    is offensive to the best interest of the American people. I
    yield back.
        Mr. Walden. Thank the gentleman's comments. We appreciate
    his comments. We are just trying to get to the truth and the
    answers, and that is why it is a bipartisan hearing. So I
    appreciate your participation.
        We will now go to the gentleman from Louisiana, Mr.
    Scalise, for 5 minutes.
        Mr. Scalise. Thank you, Mr. Chairman. I appreciate you
    having this hearing. It is a very important hearing to have
    dealing with a program that has had a history of fraud and
    waste and abuse. This program is the kind of program that
    really angers, I know, a lot of my constituents, and I am far
    from alone when I talk to colleagues of mine from all across
    the country. Whether you want to call it an Obama phone or free
    cell phone or whatever it is, it is a program that the Federal
    Government has set up that taxes----
        Mr. Rush. What about a Bush-Obama phone?
        Mr. Scalise. Whatever you want to call it----
        Mr. Walden. Regular order, please.
        Mr. Scalise [continuing]. It is a free phone to some people
    that is paid for by other people, and those other people that
    are paying for that service, when they see the fraud and abuse
    and the waste in this program, get incredibly angry, and to
    discount that anger of hardworking taxpayers who are seeing
    their cell phone bills go up, knowing that some of that money
    is being used to pay for somebody else to get free cell phones,
    and in many cases, in violation of the law itself, they have a
    right to be angry. And their anger is very justified when they
    look at the dramatic increase over the last few years of the
    cost of this program.
        I want to ask you, Ms. Veach, because it is being
    considered by some and there is legislation filed to expand
    this into broadband. I think that should tell you that if they
    filing a bill to expand it into broadband, that means that the
    law shouldn't currently allow you to provide broadband services
    for free to some people at a cost to other people. If they are
    filing a bill to try to make that legal, yet in your own
    testimony, you talk about a pilot program that you all have
    already undergone, started, to extend it to broadband. Under
    what legal authority--first of all, with all the fraud, waste,
    and abuse in the existing program, what legal authority do you
    have to actually broaden it even more? And whether you want to
    call it an Obama pad or a Bush pad or whatever you want to call
    it, you are already expanding this program into an area that
    the law doesn't say you can expand it to, and in fact, when our
    colleagues on the other side file a bill to do this, they are
    implying that you don't have the legal authority to do it
    today. Where is that legal authority coming from?
        Ms. Veach. Thank you, Congressman.
        As you say, we have taken a small piece of the savings from
    the other reforms----
        Mr. Scalise. How much?
        Ms. Veach. Fourteen million dollars to initiate a broadband
    pilot that will inform us by testing different technologies,
    different types of speeds and so forth to see what we can do
    to----
        Mr. Scalise. Under what--you tell me what you are doing.
    What legal authority do you have to do it? Fourteen million
    dollars of money that should be in the pockets of hardworking
    taxpayers to lower their cell phone bill. You know, and this is
    where we get to the, you know, the overall abuse of the
    program, but also the overall public opinion of the program,
    because there are--you know, in Louisiana, a family of four
    making $35,000 a year is paying for this. They can't get the
    free phone. You know, this is a family who made a decision, you
    know, if they have got their own cell phone, and let's say they
    got broadband at their house, they are paying for that with
    after-tax dollars that they worked really hard for and they
    made tough decisions. They might not go out to eat one night
    because they--that is an important priority that they have set,
    and it angers them when now they are paying somebody else's
    free cell phone bill. And then you have identified waste,
    fraud, and abuse that this committee had oversight on and that
    has been identified by many people. We are trying to clean up
    the fraud and abuse.
        I am cosponsor--not a cosponsor directly, but a supporter
    of legislation by Representative Griffin--I think there are
    other bills that would actually go back to the original intent
    and say no more free cell phones. But they are looking at this
    and they are saying I am paying for this. And if instead of
    saying oh, oK, we found waste, fraud, and abuse, what the
    government should be doing is saying that money--every quarter
    you assess the companies that ultimately taxpayers pay the
    bill. You assess them every quarter. You could lower their cell
    phone bill by the amount of money that you found in waste,
    fraud, and abuse that we directed you to go find in waste,
    fraud, and abuse. Instead, you have taken it upon yourself to
    take that money and not lower the cell phone bill for that
    family of four in Louisiana making $35,000 a year. They would
    like to see their bill lowered. They are struggling in tough
    times, but for whatever reason, you decided as a bureaucrat
    that you are just going to go create a new program that you are
    not even legally authorized to create to spend that money,
    instead of letting them have that money back in their pocket.
        So I would hope when you are trying to think of what to do
    with the money that you are finally uncovering from waste,
    fraud, and abuse, you don't see it as some kind of honey pot
    that you can go and spend somewhere else. That is money that
    ought to be in those hardworking taxpayers' pockets, not the
    government to spend on something else, but finally give them a
    break. Give the folks that are paying the freight a break so
    that they don't have to pay as much, and maybe they can go out
    to eat one night with their family of four, instead of having
    to fund somebody's free broadband and free cell phones and all
    this other stuff that they are irritated about.
        And the final thing is I would ask you to get us the list--
    because it has been asked before. Get us the list of the number
    of people that are in this in this Lifeline program that have
    free cell phones that actually pay out of their pocket to
    upgrade it. For whatever reason, they have got enough money to
    upgrade it, maybe they should be paying for their own phone and
    not having the government pay for it, not having that taxpayer
    pay for it. But will you get the committee the count of how
    many people that are in the program actually pay to upgrade
    their service? Can you get us that?
        Ms. Veach. We will work with your office to provide what we
    can, yes.
        Mr. Scalise. We would like you to get us that count of how
    many people actually do that.
        I appreciate the chairman's discretion, and I yield back
    the balance of my time.
        Mr. Walden. Gentleman yields back.
        I believe all the members have had an opportunity to ask at
    least the first round of questions. We are not going to do a
    second round, but there may be other questions for the record
    we would like you to address, and we may need to probe deeper
    into this issue from different angles, perhaps at a future
    hearing.
        Yes, I would recognize the gentlelady from California.
        Ms. Eshoo. Thank you, Mr. Chairman. I would like unanimous
    consent to place into the record the following. It is a listing
    of the 2012 Top 10 High Cost Disbursements by States, and it
    also lists out the 2012 top 10 Lifetime Disbursements by
    States, and just----
        Mr. Walden. Without objection.
        [The information appears at the conclusion of the hearing.]
        Ms. Eshoo. I just wanted to point out to the gentleman that
    in Louisiana, there is 110,927--now these are--110,927,000 and
    that is an overage--is that an overage? That is how much more
    the state gets. But I think this is instructive, so thank you
    for allowing us to place----
        Mr. Walden. Without objection.
        Ms. Eshoo [continuing]. It in the record.
        Mr. Walden. And Mr. Long has returned, so we will turn to 5
    minutes of questioning from Mr. Long.
        Mr. Long. Thank you, Mr. Chairman, and thank you all for
    being here today.
        Start with Billy Jack Gregg, if I can. On the slide that
    you showed earlier, the red line going across on Maryland, was
    that at the poverty line?
        Mr. Gregg. That was the number of low income households,
    households at 135 percent of the federal poverty guidelines or
    below.
        Mr. Long. So that was at the 135 percent level?
        Mr. Gregg. Right.
        Mr. Long. And your graph showed that there is a
    considerable number of people that are getting these phones
    that are above that income level, correct?
        Mr. Gregg. Right. Currently, for the most recent data, the
    total number of low income households in Maryland was about
    304,000. The number of Lifeline subscribers was 654,000, so
    over double.
        Mr. Long. And my understanding--go to Ms. Veach now. My
    understanding is that the FCC does not use that data, is that
    correct, or were you aware of that figure that so many more
    people above that should be not qualified to get this phone are
    actually getting it?
        Ms. Veach. Congressman, I have seen the information that
    Mr. Gregg provided, and we have also taken actions to ensure
    that only customers who are eligible to sign up and only one
    customer per household will be able to sign up. And we have, in
    fact, notified consumers when we have identified that they have
    duplicate phones that they are in violation of the rules and
    next time could be fined by the FCC for that violation.
        We are also standing up a database to prevent that from
    happening again, and in the meantime, will continue to scrub
    the roles.
        Mr. Long. Staying with you, Ms. Veach, what percentage of
    users go over their free 200 minutes on their phones?
        Ms. Veach. I don't have that, Mr. Congressman.
        Mr. Long. Could you get that and get back to us with that?
        Ms. Veach. We will work with your office to provide what we
    can, absolutely.
        Mr. Long. OK, thank you. That takes out the second part of
    my question. Ms. Veach, again, what percentage of the eligible
    population are Lifeline recipients?
        Ms. Veach. It is a complex estimate because we--you can be
    eligible either based on your income or by participation in
    another federal program. We estimate that is it about \1/3\ of
    households.
        Mr. Long. About \1/3\ of the eligible households----
        Ms. Veach. That is right.
        Mr. Long [continuing]. Are receiving this phone? What--on
    this 200 minutes that they get, if someone has their own
    personal cell phone and they have one of these phones we are
    talking about here today, and they forward their personal phone
    to their whatever you want to call it, Lifeline phone we will
    call it, and first use up their minutes there, do you know--
    have you looked into that or heard of any of that happening?
        Ms. Veach. I have not, but we take all allegations about
    abuse in the program very seriously and I would be happy to
    check with my team and get back to you on that.
        Mr. Long. If you would I would appreciate that, because I
    have heard of that very thing. A congresswoman related to me
    yesterday that one of her constituents related to her that that
    is what she was doing with her phone was forwarding, and I am
    trying to check with some of the providers to see if that would
    even save money or not. Would that not use the minutes on their
    personal phone, anyone on the panel?
        Mr. Jones. Congressman, I would suggest each state does
    this differently. I know that when we designated ETCs, some
    were at 200, 250, 300 minutes. We had the 800-number issue to
    deal with, if that would count. When you call an 800-number,
    does that count toward the minutes? We decided no. I would urge
    you to talk to Chairman Kinney of your Missouri Public Service
    Commission, because they have designated these ETCs and
    Chairman Kinney and the staff of the Missouri commission can
    share with you the terms and conditions of all these ETCs.
        Mr. Long. OK.
        Ms. Gonzalez, going to you, you said, I believe, that
    15,000 people of 15,000 per year and under make up \1/3\ of the
    users of these phones, is that correct?
        Ms. Gonzalez. Under $15,000 a year make up the majority, I
    think about 80 percent, according to one provider. All the
    providers provide different----
        Mr. Long. What I had in my notes here that I wrote down as
    you were speaking earlier, I thought you said \1/3\ were under
    15, \1/3\ were over 65, and \1/3\ were disabled.
        Ms. Gonzalez. No, please let me clarify. Nearly 80 percent,
    according to one provider, make under $15,000 a year, nearly
    \1/3\ are over the age of 55, and over \1/3\ are disabled.
        Mr. Long. OK. Mr. Guttman-McCabe, you said that these are
    not taxpayer funds that pay for these phones, so clarify again
    who is paying for these phones?
        Mr. Guttman-McCabe. Sure. They come from the consumer and
    they go to USAC, so the carriers are given a percentage that
    they must pay, a number that they must pay, and that money----
        Mr. Long. And is that not passed on to their customers?
        Mr. Guttman-McCabe. It is passed on but it is not a budget
    line for it, it is not a debt or deficit number. It doesn't
    touch the U.S. Treasury.
        Mr. Long. Oh, it doesn't show up in the 42 percent more
    that we are spending in this country right now than we take in
    every year? It is not in that figure?
        Mr. Guttman-McCabe. It is not in that figure.
        Mr. Long. But it is taken out of the economy from the
    people that----
        Mr. Guttman-McCabe. Although it is also put back into the
    economy----
        Mr. Long. I am sorry?
        Mr. Walden. It is on your bill though?
        Mr. Guttman-McCabe. It is on your bill. It is paid by the
    consumer but it is not a tax. It doesn't touch the Treasury----
        Mr. Long. Yes, but it is not a voluntary thing on your
    bill. The customer has to pay that if they want to keep their
    phone going.
        Mr. Guttman-McCabe. They do.
        Mr. Long. So that money is coming out of the economy?
        Mr. Guttman-McCabe. Yes, although arguably going back into
    the economy as part of the, you know, the companies that are
    hiring and paying employees, so it is almost circular, in a
    sense. But it is not a budget line, it is not a debt or deficit
    issue. It is not targeted to any budgetary implication.
        Mr. Long. OK, but I am very concerned to see Mr. Gregg's
    figures, for your benefit, Ms. Veach, where you have such a
    huge percentage of people in the State of Maryland right next
    door here that are--have these phones that unless these figures
    are inaccurate, are not eligible to receive the phones because
    they make way above the 135 percent above the poverty level, so
    I would hope that somehow you all could take what you are not
    doing now, take this information from Mr. Gregg and research
    that, and if you will get back to me with those questions that
    I asked you earlier that you said you would get to me, I would
    appreciate it.
        And again, thank you all very much for being here, and Mr.
    Chairman, I yield back.
        Mr. Walden. Gentleman yields back the balance of his time.
    I think that wraps up our hearing. We appreciate, again, the
    testimony you have given, the information you have shared with
    us, the answers to our questions. I am sure there will be
    additional questions that we may have back for you, maybe in a
    bipartisan way as well. So again, thank you for your
    participation today, and our hearing is adjourned.
        [Whereupon, at 12:28 p.m., the subcommittee was adjourned.]
        [Material submitted for inclusion in the record follows:]

                    Prepared statement of Hon. Leonard Lance

        Thank you Mr. Chairman,
        I am pleased that the Subcommittee is holding this hearing
    today.I believe the federal Lifeline program, created during
    the Reagan Administration almost 30 years ago, provides an
    important public service, ensuring that all Americans,
    regardless of income, are able to take advantage of basic
    telecommunications services.
        But even the most laudable programs must be scrutinized to
    make certain they are being conducted in a fiscally responsible
    manner consistent with using taxpayer dollars wisely and
    efficiently.
        Like many of my colleagues I applauded the many reforms the
    FCC has enacted to the Lifeline program
        Last year the FCC instituted new rules that required
    carriers that received Lifeline funds certify that their
    subscribers were eligible for the program, an effort to
    streamline the program and reduce waste.
        But as a result, according to a recent report from the Wall
    Street Journal, 41 percent of the roughly 6 million subscribers
    in the Lifeline program ``either couldn't demonstrate their
    eligibility or didn't respond to requests for certification.''
        And despite reforms by the FCC to address waste, fraud and
    abuse in the program, spending on Lifeline increased 26 percent
    last year--rising from $1.75 billion in 2011 to $2.2 billion in
    2012.
        I am optimistic that additional reforms scheduled to take
    effect this year--including annual recertification
    requirements, and independent audits--will provide greater
    oversight of the Lifeline program and possibly discourage those
    companies and individuals who have taken advantage of the
    program and jeopardizing its future for those who desperately
    need it.
        I very much look forward to hearing the views of our panel
    today on ways we can work together to ensure that the federal
    Lifeline program is being conducted properly and efficiently in
    the spirit in which it was created under President Reagan
    almost 30 years ago.
        Thank you Mr. Chairman, I yield back my time,

        [GRAPHIC] [TIFF OMITTED]